REQUEST OVERVIEW
Beyond the Price Tag: Defining and Evaluating for the “Lowest Responsible Bidder”
All too often, public officials, including authority staff, mistakenly believe they must award contracts to bidders with the lowest price. While fiduciary responsibility to ratepayers and constituents is important, this misplaced notion can open the door to contractors or service providers who do not meet the specific needs of your project or authority – either of which can ultimately cost more. In fact, authorities have more freedom than they may realize to restrict the selection of contractors to those with sufficient capability, financial capacity, and integrity. However, including these requirements in the solicitation must be done in a manner that is clearly understood and enforceable.
The Municipal Authorities Act has provisions that allow authorities to establish criteria that can be used to evaluate whether bidders meet their needs. For example, the very first section related to the procurement process in the Municipal Authorities Act – Section 5614 (a)(1) (Competition in award of contracts) – reads in part that:
“All construction, reconstruction, repair or work of any nature made by an authority if the entire cost, value or amount, including labor and materials, exceeds a base amount of $18,500, subject to [annual] adjustment…, shall be done only under contract to be entered into by the authority with the lowest responsible bidder upon proper terms after public notice asking for competitive bids as provided in this section.”
Effectively, this gives you the discretion to establish what constitutes contractor responsibility in terms of capability, financial capacity, and integrity. It also requires you to establish a process for evaluating bidder submissions that goes beyond merely reviewing prices. Similar to equipment/material specifications and performance standards outlined in the bidding package, establishing these criteria for bidders limits the pool of prospective contractors to those with appropriate qualifications. This allows for a more comprehensive comparison of bids, excludes unqualified bidders, and ensures the selected contractors align more closely with the goals and objectives of your authority.
Anyone who has been in the unfortunate position of receiving bids, only to find that the low bidder is a contractor with a known less-than-desirable reputation, a history of criminal convictions, a shaky financial profile, or a lack of relevant experience, will appreciate having the legal and administrative means to award a project to a qualified company.
Establishing Criteria
Generally speaking, authorities can only use criteria clearly outlined in the bidding documents as a part of their evaluation process. While authorities have a bit of latitude and discretion, a good litmus test to apply to any set of criteria is whether they are reasonable and relevant to your project.
Asking a bidder for old project references or those with no similarity to the one at hand may not pass muster if challenged. The same is true of setting arbitrary capitalization standards or extending disqualifications to company officials who would not be connected to ownership or control of the project work. At the same time, there is support in the courts for bright-line tests. Provisions that preclude a bid by a company run by an owner with a recent felony conviction or one that has a documented history of not completing work would likely be upheld by the courts. Similarly, courts are likely to uphold provisions that require financial capitalization in an amount your authority has deemed as necessary to fund operations between payment applications.
The criteria used should be evaluated on a project-specific basis to ensure they meet your organization’s evolving needs. This process is easier to tackle when categorized as follows:
- Universal Requirements: These are the basic elements your authority requires for any solicitation, regardless of size, type, or duration. These may be requirements dictated by state law or items your authority wants to require in a qualification statement for all projects. Typical items may include, but are not limited to, bid bonds, non-collusion affidavit, Public Works Verification Form, bid authorizations, criminal history disclosures, general company information, subcontractor identification, tax liabilities, and a list of projects with high change order percentages. Some authorities are also starting to include such things as a contractor litigation statement, where the bidder must disclose any recent litigation with a public agency.
- Size of Project: Due to increased financial exposure, some authorities will set a bar between “small” and “large” projects, imposing greater requirements on those that exceed a predetermined threshold. Some will alter the percentage of the bid bond amount (e.g., 5% for small projects, 10% for large) or require a stronger capital requirement for larger projects.
- Funding Agency Requirements: Often, grants and low-interest loans contain provisions that are not only binding to your authority, but also to bidders. Establishing a checklist for bidders of funding agency requirements can help identify any disclosures or acknowledgments they will need to provide. Some agencies will require a comprehensive list of projects with similar funding sources, where the bidder has successfully met the corresponding requirements.
- Additional Project-Specific Requirements: The criteria in the above categories may or may not be applied based on key parameters. However, it’s imperative that you develop criteria that’s unique to each specific project. This can include items such as:
- Completion Time – A bid from a contractor who can either start sooner or finish quicker may be worth a slightly higher price depending on other circumstances, such as impacts on other facilities or infrastructure, closures or detours, or where economic benefits can be realized. This should ordinarily be handled using bid alternates to ensure bidders cannot alter the bid solicitation.
- Project Experience – When a project has unique challenges, such as a confined working space, sensitive environmental factors, or very niche services, having bidders identify completed projects of similar size and scope – along with providing references – can make a huge difference. Establishing a threshold for specialized experience will minimize issues during construction. Some organizations treat bidding like hiring a new employee; they’ll ask contractors to identify an extremely challenging situation they successfully mitigated.
- Project References – When asking for references, it is important to specify that any projects cited must align with provided references and be related to the type of project in question, with more recent examples bearing greater weight. The last thing you want is to call a reference, only to learn that individual left that company years ago.
- Resources – There may be unique requirements for equipment or personnel. For example, if the authority requires CPM scheduling, you will want to require that bidders have experience scheduling similar projects.
Evaluation Process
Once your authority has established the project criteria applicable, it is critical to outline the basics of who, how, and when the review will be completed. Even something as basic as a checklist – one that shows who completed the review, when it was done, and whether the submissions met the minimum requirements – can be useful. Ideally, your review process should be commensurate with the size and complexity of project. For a small, run-of-the-mill project, having a single reviewer, who completes a basic checklist within a few days of bid opening, may be sufficient. However, a larger, more complex project may require a team of reviewers, who spend a week or two evaluating multiple elements of the bid with weighted scoring.
The most important step is to thoroughly document the review process and the results as they are completed. If your authority’s decision is challenged, you do not want to attempt to document it retroactively. For example, you could inadvertently miss an element that falsely favors one contractor over another, which would undermine the purpose of the review process in the first place. The evaluation results should be easy to understand and should clearly identify where bidders were deficient compared to the criteria in the solicitation.
While establishing a sound set of criteria and evaluation process may be a front-loaded effort, the return on that investment can yield great results on projects of all sizes. By turning hindsight into foresight, you can promote a thorough, fair, and objective bid process that can resist even the most rigorous of challenges.
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Special thanks to William W. Warren Jr., a senior partner at Saul Ewing LLP, who contributed to this article. A member of Saul Ewing’s government contracts and construction practices, he has worked extensively on public, nonprofit and private construction programs and governmental procurement of technology, equipment, commodities, and services. Bill can be reached at william.warren@saul.com or 717-238-7698.
You can download this article in the April 2025 issue of The Authority magazine published by PMMA.