Are there better, more cost-effective and practical solutions to public sector procurement challenges than low-bid-wins the job competitions?
Architects, engineers, contractors and owners have been seeking solutions and several industry associations advocate that Quaity Based Selection (QBS) is the best option.
Price-based procurement models don’t always deliver the best value, say AEC industry leaders. The OAA and other members of the Construction Design Alliance of Ontario (CDAO) think that quality should override price in determining who wins design-based contracts.
In Ontario’s mostly price-based model, the “race to the bottom” results in higher construction and building lifecycle costs because the lack of reasonable compensation for designers can result in less-than-perfect work and shortcuts, and the unavailability of senior and highly competent designers to create the most effective and durable results, says OAA president Bill Birdsell.
Conversely, in the U.S., the Brooks Act specifies that price should not be a consideration in evaluating architectural and engineering proposals for federally-funded projects. The legislation results in a distinctively different public sector bidding environment, where incumbents and designers with strong existing relationships with public agencies have a real edge in retaining follow-up work, because of the qualitative relationships – and they don’t have to fear a low bidder appearing out of nowhere to steal their business. (Most U.S. state and local governments follow the Brooks Act model for projects under their jurisdiction.)
These rules don’t apply in Ontario. Birdsell says some public agencies purport to use a quality-based system, with a two-envelope model – where price is only considered after the qualifications are evaluated. But in this situation, price still is the final consideration – and this results in architects and designers bidding with fear and pricing lower than they need to sustain their practices.
In a Quality Based Selection (QBS) system, bidders are awarded points based on their measurable capacities in specific categories and ratings.
Short-listed competitors are interviewed, and the ratings are further refined. In each interview, the consulting team “has the opportunity to discuss innovation and the unique approach it would take to create a design that best addresses the client’s objectives,” OAA executive director Kristi Doyle said in a Nov. 2012 seminar about QBS jointly co-ordinated by the OAA, the Association of Registered Interior Designers of Ontario (ARIDO), Consulting Engineers Ontario (CEO) and the Ontario General Contractors Association (OGCA).
In notes posted on the procurementproject.ca website, Doyle observed:
- Client ranks the competing teams: The highest-ranked team is the one the client believes can design a project that will best address their objectives;
- A detailed scope of services is then established in consultation with (the) preferred team, including deliverables, that will produce the best results in achieving the client’s objectives;
- Client and consulting team negotiate a fee and a realistic project schedule that will enable the consulting team to deliver the desired scope and quality of services.”
In the QBS model, fees are only discussed at this final, negotiating stage. If the client and designer cannot come to an agreement on price, the client has the right to end the communications and go to the second-ranked design team. The “client will not renew negotiations with the highest-ranked team” in this circumstance.
In the U.S., where QBS is mandated by legislation, architectural and engineering representatives say that the system favours incumbents and well-established businesses over new-comers, but overall works effectively and competitively.
“QBS absolutely creates advantages for incumbency,” says Tim Klabunde, marketing director for Richmond, Virginia-based engineer Timmons Group. “I believe that is one of the key benefits of QBS and (is) not an issue. Incumbency ensures that AEC professionals are dedicated to long-term relationships instead of short-term project gains.
“Design professionals are much more likely to sacrifice profits on a current job to make certain it is successful, resulting in better projects and less risk to owners,” Klabunde added. “The issue of course is that firms looking to break into a market have a much more difficult time, but as most AEC marketers will tell you, while it is challenging it is not impossible. The summary is that QBS is not only best for our clients, but it is also best for our industry as a whole.”
The U.S. Brooks Act QBS model applies for architects and engineers, but not contractors, who continue to compete on price. However, the model works well, proponents say, for design-build and Integrated Project Delivery (IPD) projects, where designers and contractors work together as a unified team.
Still, the OAA’s Bill Birdsell says Canadian agencies have a long ways to go before truly effective QBS is introduced as the primary procurement method.
He says in Ontario, QBS has been applied successfully with Defence Construction Canada on federal military projects, and some municipalities and school boards, especially in southwestern Ontario, have picked up on the concept.
“The difficult aspect is not getting people to embrace the system,” he said. “It’s just getting people to ask the right questions to get the appropriate scope of services. The difficulty is people tend to think they know what they want. They put it out for RFP and then they’ve opened the door and interpret it so that they think they are fulfilling the request and it always rolls back to being fee-based selection as opposed to quality-based selection.”
This results in a “worst of two worlds” situation. In a QBS model, designers need to put much effort, care and thought into their proposals – the process isn’t simply figuring out an artificially low hourly rate, and putting a price tag on the time. But there’s still the “second envelope” — where cost comes into consideration.
“If you’ve got more than half the proponents pre-qualified, then there is the fear that ‘Company X’ will put in a slightly lower price” and win the job, Birdsell says. So this fear induces designers to price their work below its value, perhaps hoping to make it up later.
The result: Contractors complain about incomplete or inconsistent plans, real life-cycle cost savings are lost in the rush to produce inexpensive design documents, and there isn’t the money to pay for qualified designers to do their best work.
This is folly, Birdsell says. Design is a relatively small part of the overall construction cost on projects which can be valued in the hundreds of millions of dollars. And that quality is truly at risk “by not choosing architects with effective quality-based selection.” he said.
“What’s the scope of risks ? (The design fee) is a relatively small number, microscopic compared to the construction value (and even more so) for the total cost of a facility through its life cycle of 50 years or more.”
Birdsell says several associations belonging to the CDAC, representing different aspects of the design community and general contractors, are encouraging procurement agencies to move towards QBS – but he acknowledged the uphill battle.
However, he says he doesn’t believe a legislative solution such as the U.S. Brooks Act is a solution to Canada’s QBS challenge. He says the Canadian approach is more consultative rather than adversarial. “We’re stronger because we are going to have more conversations and we can’t just pass a law, but it takes a lot more work,” Birdsell said.