Competitive Bidding - "The most likely procedure for selecting the least able or qualified and the most incompetent practitioner…."

By David P. Hansen, Shareholder

Eichelbaum Wardell Hansen Powell & Mehl, P.C.

Not my words, but also not wrong words. This is an article about hiring design professionals—not about competitive bidding. In fact, as indicated by the title it is about some of the legal and practical reasons that Competitive Bidding for design professionals is almost universally shunned in the United States. Astronaut John Glenn once joked about how he felt before his 1962 trip aboard Friendship 7:

'I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of 2 million parts — all built by the lowest bidder on a government contract.'

Roughly translated:  skill and expertise are valued over price when lives are at stake. When it comes to hiring architects and engineers, Texas is a qualifications-based-selection State. There is evidence that high quality and low cost are not incompatible terms.  In 1971 The Texas Legislature passed the Professional Services Procurement Act (the PSPA). The usual reaction to the PSPA’s requirement that priority is given to competence before any consideration of price is often unpleasant when you are the "expert" (aka pencil-necked _insert your profession here_) tasked with breaking the news to the Board of Trustees. So, let's get back to an American hero John Glenn. In its original form, the PSPA echoed Glenn's sentiment:

The fact that the selection of . . . architects. . . and professional engineers on the basis of the lowest bid places a premium on incompetence and is the most likely procedure for selecting the least able or qualified and the most incompetent practitioner for the performance of services vitally affecting the health, welfare, and safety of the public …

Session Laws—Acts 1971, 62nd Leg., p. 72, ch. 38; Vernon's Ann. Civ. St. art. 664-4[repealed].  Just a year later, the U.S. Congress passed the Brooks Act named after Texas Representative Jack Brooks, codifying in Federal Law the practice of QBS or "Qualifications-Based Selection." Both the Federal and State laws applicable to construction in Texas are, therefore, "QBS" laws.   A "QBS" law is a law that requires the selection of an architect or engineer to be based upon "demonstrated competence and qualifications." 40 U.S.C.A. § 1101.

"Why Qualifications over Price?"

Consider the possibility that high qualifications are not the “enemy” of economy. Consider the possibility that hiring the most highly qualified design professional translates to a lower overall construction cost. Researchers found that qualifications-based selection does not lead to higher overall facility costs.[1] To the contrary, the study showed that design professionals that were selected based upon their demonstrated competence and qualifications produced high-quality designs which consistently led to lower overall construction costs and reduced change orders.  It makes sense if you think of the practical impact of a low-quality set of design documents.  

Anyone who has experienced the frustration of a change order necessitated by an incomplete set of drawings knows that late changes lead to expensive change orders. The same is true when a faulty design leads to a construction-phase re-design. When elements are erroneously omitted or incorrectly designed, the cost of constructing those elements increases for some pretty obvious reasons.

When a design element is omitted from the original bidding documents and then added later, work that is bid as a part of a change order typically costs more than it would have had the work been bid out with the whole project. A big reason for the higher cost is "competition," or, more precisely, "a lack of competition" to construct the omitted elements. In the original bid for a project, numerous contractors would have competed to build the omitted elements.   After the contract is awarded, the owner depends upon the pricing it receives from its prime contractor. Normally, the owner has little choice but to accept the contractor's pricing, and the contractor has little incentive to offer lower pricing to the owner.  

Inflation is another reason that adding work via change order is more costly than if that same work had been a part of the original procurement. Conservatively, let’s say that construction costs inflate at about 6% per year, and so an error or omission discovered two years after bidding could result in paying a price more than 10 percent higher than if the work had been included in with the original design documents. Other late additions to the project necessitate the demolition of work that is already completed in order to remediate a design error or omission. So, add that inefficiency to inflation and the delays associated with re-doing work, and there are some pretty tangible consequences to weighing cost over qualifications when hiring a design professional.  

So, high-quality construction documents can lead to lower construction costs. The legislature's central thesis in drafting the PSPA was that competent and qualified design professionals are likely to produce high-quality construction documents, and design professionals who prominently displayed their cheap pricing were the "the least able or qualified and the most incompetent practitioner for the performance of services vitally affecting the health, welfare, and safety of the public."[2]

Okay—the last sentence of the previous paragraph just made you think of someone you know.   That person probably wasn't really the most incompetent design professional. Or, maybe he or she was.  Who knows?   Thankfully, the legislature made the selection process simple. It also left you the option to get to the bottom of the barrel if you feel like taking that risk on a pick from the "bargain bin."[3] If only the legislature were so helpful in everything it did to you. So, here's the process outlined in the Texas Professional Services Procurement Act. It is simple.  

Step 1:  Select the MHQBDCQ!  the Most Highly Qualified provider of those services Based on Demonstrated Competence and Qualifications; and

Step 2: attempt to negotiate with that provider a contract at a fair and reasonable price.

Step 2.1 If a satisfactory contract cannot be negotiated with that design professional: 1) formally end negotiations with that provider; 2) select the next most highly qualified provider; and 3) attempt to negotiate a contract with that provider at a fair and reasonable price.

Rinse and repeat until you enter a contract or run out of design professionals. Tex. Gov't Code § 2254.004.  

So, put qualifications first and, at least as to the PSPA, you are a law-abiding citizen. Skip and consider pricing first and you play the outlaw. You can choose to be a law-abiding citizen or an outlaw. You can also choose to drive with your tires inflated or flat or to wear your clothes inside-out to work. There are consequences.  

For Texas school districts, contracts for construction services that are in excess of $50,000 must be procured in accordance with Texas Education Code Section 44.031. Section 44.031 refers contracts for construction of school facilities to Chapter 2269 of the Texas Government Code. A school district that purchases construction services through a method of delivery that is available under Chapter 2269 of the Texas Government Code is required to hire its architects and engineers in accordance with Texas Government Code Section 2254 – the Professional Services Procurement Act. Texas Government Code §2269.057. If you choose the outlaw path, one of the consequences will be that the contract is void. Texas Government Code §2254.005.  Another consequence could arise through a violation of Texas Education Code §44.031, which requires compliance with Government Code Section 2269, which requires compliance with the PSPA. See Op. Tex. Atty. Gen No. JC-0026 (2000).

School Architects and Engineers Affect the Health, Welfare, and Safety of Children

If avoiding low-quality construction documents, and being a law-abiding citizen aren't enough to make you wait just a little bit longer than you want before you can start talking price with a prospective design professional, then consider the safety factor. Design competence doesn't just lead to lower cost. The competence of your design firm is also measured in the safety of the facilities it designs.  

Numerous public and private institutions have studied the relationship between competitive bidding and design defects. One of the most thoroughly discussed examples is the Skyway Collapse at the Kansas City Hyatt Regency, in Kansas City, Missouri. Numerous deaths occurred when two elevated walkways collapsed. In 1984, the U.S. House of Representatives Subcommittee on Science, Space, and Technology held hearings in the aftermath of the collapse. After the hearing, the Subcommittee issued a finding that the engineering contract for the Hyatt project was awarded based on the "low bid." It found that the Engineer for that project specified that the rod connections for the walkways would be detailed by the fabricator.   It also found that pricing pressures in engineering had the effect of limiting the ability of the engineering firms to verify the accuracy of the plans and design adequately. House Report 98-621. In other words, the act of cost-cutting by reducing the investment in engineering led to a reduction in the quality and quantity of engineering services from the firm responsible for designing the walkway. If you are trying to think of a good analogy for school districts, think about the common inclination to minimize the role of or to forego the procurement of a design professional for a major roofing project altogether. Think of the impulse to reduce the role of or to forego altogether the hiring of a design professional to design the structure for a large scoreboard in a stadium.  

In Summary: In Two Easy Steps You Can Be a Safe, Financially Sound, Law-Abiding Citizen.

Listen to the wisdom of the first American to orbit the earth. Show some Texas pride – you beat the rest of America to the punch by adopting the PSPA a year before a fellow Texan, Jack Brooks, sponsored and passed the federal Brooks Act. As steps go, it's simpler than learning the the Texas Two-Step. Select the design professional on the basis of competence and qualifications and then negotiate an agreement with the most highly qualified design professional at a fair and reasonable price. By following the process, you get the most qualified design professional, at a reasonable price, and best of all, you remain a law-abiding citizen with a contract that won't be void under Texas Government Code §2254.005.[4]   

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[1] Chinowsky, Paul S. An Analysis of Issues Pertaining to Qualifications-Based Selection. American Council of Engineering Companies and the American Public Works Association, 2009, pp. 1–52.

[2] Session Laws—Acts 1971, 62nd Leg., p. 72, ch. 38; Vernon's Ann. Civ. St. art. 664-4[repealed

[3] Things to avoid selecting from the bargain bin: used Chapstick; open box AA batteries; pimento loaf; deviled eggs; Architects, Structural Engineers, Electrical Engineers; Geotechnical Engineers; Civil Engineers; Mechanical Engineers; and opened cans of tuna fish.

[4] “A contract entered into or an arrangement made in violation of this subchapter is void as against public policy.”
Tex. Gov't Code Ann. § 2254.005.