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Nov 01 2018
To Bid or Not to Bid
In energy efficiency, bidding is everything in the public sector. It can help or kill a project, and with 1,299 municipalities, and nearly 7,000 governing bodies, there are a lot of different decision making that needs to happen if we are to significantly reduce the energy that our public sector uses.
Now these governing bodies have rules and regulations that they must follow when buying and procuring work that, well, does not always help these bodies govern. There are smart rules in place for a reason – you don’t want the mayor’s brother getting huge contracts worth millions of overpriced work. But smaller communities often overcompensate for this, which can make procurement more expensive and with lower quality results. In addition, overzealous following of interpreted rules can lead to much higher project costs when you include the oversight costs of managing a bidding process. And let’s be honest, the mayor’s brother does often get the contract in the big cities that matter.
This article is intended to be a resource for public sector decision makers to know when to bid and when not to bid, but it is in no way a legal decision or unbiased publication to resource. You should always consult your legal team, but we find that huge municipalities are not the ones that need this resource. It is the small and growing exurb of Chicago that has not dealt with a ton of this in the past, and does not have dedicated legal teams to sort through this complicated topic.
And, let me be clear. I have personally worked at a municipal government for 10 years, as well as been a vendor for public sector projects for 6 years and this is a fact – no two departments follow the same process. Some departments will bid out any work over $20,000, some will bid out any work that their out of pocket is over $20,000, some will seek 3 different quotes while others will have a formal process.
First, let’s look at the positive roles that bidding plays for our governing bodies:
Fair chance for all companies to bid on work
Less chance of a friend or family member from getting exclusive access from work, which essentially just becomes siphoning public funds to individuals
Higher likelihood that less public funds will be used in the short run to complete projects
Now let’s look at the negative role of bidding in energy efficiency work. In my experience, bidding often stops governing bodies from moving forward with energy efficiency projects in the way that the private sector does. I have found this to be concerning for several reasons, including:
Indirect project costs get escalated, as it takes significant man and woman power to go through all of the bid proposals.
Direct bid costs get higher – as those companies that bid on multiple projects have to bid on 10 or even 20 projects for every bid that they win. Those are costs that the industry absorbs somewhere.
Bidding governing bodies cannot specify the manufacturer of products that they want, so this often leads to a poor quality of installed products.
Consultants do not need to have bidding, so this can make projects that include a consultant complicated.
Incentive programs, such as the Comed Energy Efficiency Program, often have select group of partners that can access rebates for energy efficiency. This makes bidding complicated.
Bidding often involves people responding from a desk somewhere to a project put together, without ever stepping foot on site. Energy efficiency is complicated, and cannot be done properly without a site assessment.
In my experience, I have seen far more projects stalled from bidding and lead to frustrated public work managers or Fire Chiefs. They have no choice but to take the lowest cost option presented, which can often lead to overages and products that they do not want.
I often think of a village on the southwest side of Chicago, that had an incredible project converting street lights to LED go unfinished and lead to a massive scandal. They picked a partner that was offering something a little too good to be true, and that was what they got in the end. The public works director was frustrated with the project, and wanted to avoid another similar situation.
When I met with them, they were then looking to convert their public works, police station, and village hall to LED. We presented a project in a consultative style, with Philips LED fixtures and sensors that improved the look of the space, took advantage of ambient daylight to dim fixtures (daylight harvesting), and had a great network of lighting sensors that worked together with seamless integration. Our project overall cost (and value to the town) was $100,000, and they had an out of pocket of $37,000 across 8 government buildings after the utility incentives. In our approach, we maximized long-term energy savings, as well as maximized available grants and incentives that were available to them.
After they bid out the project, they went with a vendor that was installing $70,000 worth of products for slightly less than $30,000, all likely non-branded Chinese products, and likely lacking sensors and controls to optimize control by the employees and long-term savings. They focused on the lowest cost option, as opposed to the best long term project for the village. The winning products also likely lacked the longevity of a Philips branded product, which is rated for 70,000 hours.
I know from first-hand experience that the public works director felt handcuffed to go with the lowest cost bid.
In the short run, the village spent around $10,000 less on the project, but in the long run, will lose money in higher energy costs. and almost certainly lose money in higher maintenance costs, which cannot be encapsulated in a lowest bidding project.
Better Project or Just More Expensive Project
It is not a clear cut that project A is a better project and not just a more expensive project. Project B could win the bid with lower material costs, lower profit margins, or lower labor costs. That is capitalism and at the heart of our economy. However, it can also be using cheaper materials to bring down the cost, which is what we often see in public sector work. Cheaper materials are always cheaper in the short run, but almost always more expensive in the long run. The choice to buy a Bosch dishwasher over the cheapest one on the market is also at the heart of our economy, and low-cost bidding takes that option away.
Public buildings are some of the few buildings that can truly think long term, as we will need our fire and police stations operating for the next 100 years, whereas a local business owner may not have that certainty.
Here are some towns with experience that list their formal process, for you to consider basing your policies on, including Naperville, Joliet, and of course, Chicago.
Common Q and A:
Can I dictate the materials when going out to bid?
We have seen this on several projects, where CREE is the manufacturer of choice. Manufacturers have a way of supporting certain contractors in price, so this is not actually a fair process of bidding. It also might lend the public entity to pick a product that is not necessarily better, but just more expensive (as I feel that CREE can be at times).
A public entity cannot put out to bid a specific manufacturer but can specify requirements. For example, if Verde decided to buy a new vehicle fleet (and had to bid it out – weird situ They can specify requirements, like where it is made, the warranty, MPG, etc. They cannot say that they want to buy a 2018 Hyundai Ioniq, but they could say that they want to a car with at least 57 MPG highway (which that car can do).
While this has its benefits, it is also a challenge when bidding. You don’t want the cheapest looking and flimsiest LED on the market. You don’t want a 70,000-hour warranty from a company that won’t be around next year. So if you know that you prefer Philips or GE in your products, you cannot bid out the work with that expectation.
Do I need to bid out consultants or architects?
This is a different area that doing construction, so the short answer is no. Since a lot of the work by consultants is getting a project plan together, they have a hard time bidding out that work, since they need to be in the weeds to sort it out. In energy efficiency, you want a partner that is in the weeds figuring out your best plan of action. Much of an energy efficiency project is consulting, so we do not advise bidding these projects out.
If Grants, rebates, or incentives are awarded, what cost do I consider for bidding purposes?
In our opinion, we highly advise you to base your project scope on your out of pocket when the grant or rebate is paid directly to the consulting or contracting company, especially if they are doing the work to get you the incentives. Especially in the Comed Energy Efficiency Program, incentives can wildly change based on the way you maximize the project design. If you leave sensors off of fixtures, you could be missing an opportunity of thousands of dollars of incentives that your taxpayers deserve, and they are often so significant that fixtures with sensors and less expensive than fixtures without.
For example, if your project is $10,000, and your incentive is $6,000 – we recommend that you consider this as a $4,000 project since the $6,000 never flows through your town or village.
If we have multiple buildings, should we award the work at a single time or break them into various projects?
I recommend that governments look at this in what is the intention of this project, and not a way to beat the bidding process.
If you have a budget and want to get all of your buildings done at one time, and regardless of incentives or grants, then you should consider the total out of pocket to you for the bid threshold minimum.
However, I don’t recommend this approach personally. Project managers consider that they can get a better price if do all of a project at one time. However, this kind of oversight is high and can lead to multiple meetings and a significant investment of time and money (something often precious in the public sector). We find more successful projects are done one or two at a time, and starting with smaller projects. This gives your town a chance to see how the first project plays out, and respond to what you like and didn’t’ like about that project. It also gives you a chance to push back on the vendor and make sure they are diligent in getting things the way you want and expect. We have gone out 13 times to get a project right, and we would have gone the 14th if needed to get things to how the customer expects. Not all partners work that way and rely on tight contracts to protect their small margins.
I also don’t recommend that you break a large project into chunks just to avoid a bidding process. However, if breaking the project up makes sense for how the building is used or for your budget, then do so and follow your bidding guidelines.
Sampling is also an important way to get your expectations aligned with your energy efficiency partner before you start, and that takes time and money. If you start with one project, you should have a very clear expectation before you begin the next one.
Even if I Do Not Formally Bid, Should I Seek Other Quotes?
I think the answer to this question is absolutely yes. On your first project, it is always smart to get another opinion and approach. If your town requires 3 quotes, then I always advise checking with a local contractor in town, an energy efficiency expert, as well as one other outside firm to get a suggestion.
In my opinion, on the next project, if your next bid from your partner has consistent pricing, then you should feel confident that you did your tax payers due diligence and your time is better spent on other priorities.
If you are considering an energy efficiency project for your facility, you should start with an assessment from an energy efficiency expert. Get a baseline, understand where there are opportunities, and don’t try to do all the research yourself online and at Home Depot – you can miss out on a ton of value through utility rebates if you take that approach.
Find an initial partner to work with, either one you have done work with before or one that you find through a recommendation from your utility or neighboring community. Then, after you have a good idea of a project, go to your team and proceed with the intent of providing value and the best opportunity for your tax payers.
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