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CONTRACT PROCUREMENT AND ADMINISTRATION

BACKGROUND

Because the Board of Supervisors has the sole authority to authorize agreements and contracts, the Grand Jury deemed it appropriate to review the procedures for procurement of engineering, architectural and construction services. During the course of this review, a number of separate issues relating to the procurement process were identified. These issues are:

  1. The current method of securing bids for construction projects.
  2. Possible disincentives to bidding, and the high percentage of projects that attracted 2 bids or less.
  3. Use of engineer's estimates and contract cost control.
  4. Existing County policies relating to procurement.

METHODOLOGY

Persons interviewed:

  1. Director of the General Services Administration (GSA)
  2. Director of the Public Works Agency (PWA)
  3. Two Amador County general contractors
  4. An Amador County consulting engineer
  5. The Board of Supervisors Administrative Committee
  6. Executive Director, Consulting Engineers and Land Surveyors of California

Documents examined:

  1. Amador County Policy 5-100, entitled "Purchasing".
  2. Amador County Policy 5-200, entitled "Agreements and Contracts".
  3. Thirty nine engineering and construction bid documents and contracts, representing all Amador County projects having a value of greater than $3,000 bid during the past three years.
  4. Cost data relating to the 39 contracts analyzed.
  5. California Government Code Section 4526.
  6. Legislative Counsel of California legal opinion, dated October 30, 1989.
  7. American Institute of Architects, "Selecting Architects and Engineers for Public Building Projects: An Analysis and Comparison of the Maryland and Florida Systems", January, 1985.
  8. California Public Contract Code, Section 20150.8

FACTS

The Current Method of Securing Bids for Construction Projects

  1. The following steps are normally taken to obtain bids and award contracts:
    1. The project is budgeted by the initiating agency (e.g. PWA) during the normal budget cycle. Inclusion in the budget implies Board of Supervisors approval of the project.
    2. The initiating agency prepares contract documents, if necessary, and other instructions specific to the project. These are transmitted to GSA.
    3. GSA prepares the request for bids or request for proposals, does the legally required advertising, issues the call for bids, distributes contract documents to bidders, conducts pre-bid conferences and receives and opens bids.
    4. GSA tabulates bids and prepares a recommendation for award of contract. GSA puts the recommendations on the Board of Supervisor's consent agenda.
    5. The Board of Supervisors approves award and executes the contract.
  2. In bid documents for five of the contracts analyzed, bidders were required to submit costs based on prevailing wage rates and competitive wage rates.
  3. The County is required by Federal law to pay prevailing wage rates.

Possible Disincentives to Bidding and Low Bidder Turnout

  1. Of the 39 contracts analyzed, 24 of them, or 62%, attracted fewer than three bids.
  2. Of the 39 contracts analyzed, 7 of them, or 18%, received only one bid.
  3. Of the 39 contracts analyzed, 2 contracts received no bids.
  4. The County applies a 4% preference for Amador County contractors.
  5. The County's requirements for bonds and insurance are within acceptable construction industry standards.
  6. On many projects, the County requires bidders to attend a mandatory pre-bid conference in Amador County. Failure to attend disqualifies a contractor from bidding.
  7. On most Amador County projects, the contractor is required to forfeit a predetermined liquidated damage amount for each day the work extends beyond the contractual completion date.
  8. California law requires a minimum advertising time of 10 days.
  9. For the contracts analyzed, the elapsed time between the advertisement and the opening of bids ranged from 10 days to 43 days. The average time was 20 days.
  10. Of the 39 projects reviewed, 17 exceeded $50,000 in value. Of those 17 projects, plans and specifications for only 5 were sent to Builders Exchanges in Sacramento, San Joaquin and El Dorado Counties. A Builder's Exchange is an institution where a con tracting agency can deposit plans and specifications for review by potential bidders and subcontractors.

Use of Engineer's Estimates and Contract Cost Control

  1. In the construction industry, an estimate of project cost is commonly prepared by the design engineer. That estimate, referred to as the "engineer's estimate", is an invaluable tool for evaluating the acceptability of contractor's bids.
  2. Of the 17 projects analyzed that exceeded $50,000 in value, only one appeared to have an engineer's estimate prepared prior to the bidding process.
  3. For Amador County projects which exceeded $10,000 in value, change orders averaged 3.3% of the bid price.

Adequacy of Existing County Policies Relating to Procurement

  1. Policy 5-200 is broad in scope, covering "procurement of services or making purchases". It includes provisions for contracting for both professional services and construction contracts with no clear distinction between those two categories of contracts.
  2. Policy 5-100 covers purchasing, including some procedures related to procurement of construction contracts.
  3. California Government Code, Section 4526 states that selection by the state or any local agency head for professional services of private architectural, landscape architectural, engineering, environmental, land surveying, or construction management firms shall be on the basis of demonstrated competence and professional qualifications.
  4. Senate Bill SB 419, which mandates qualifications-based procurement by local agencies for professional services, became effective on Jan.1, 1990.
  5. The Legislative Counsel of California, in a legal opinion dated October 30, 1989, stated "local agencies will be required to select the applicable professional services on the basis of demonstrated competence and professional qualification."
  6. The law requiring procurement of design services is not unique to California. The Federal Government and nearly all other states have similar laws.
  7. A 1985 study, conducted by the American Institute of Architects, compared the experience of Maryland's Department of General Services, which selects architects and engineers on the basis of price, with Florida, which uses qualification based selection procedures. That study conclusively demonstrated that the final costs of projects where the design firm was selected on the basis of cost are higher than those where the design firm was selected on the basis of qualifications.
  8. The American Public Works Association supports the concept of qualification based selection.
  9. Amador County Policy 5-200 requires a price to be stated in proposals for engineering and architectural services.

CONCLUSIONS

Adequacy of the Current Method of Securing Bids

  1. The procedures governing bidding and award of contracts appear to be reasonable in concept. However, there are a number of ways in which the process could be improved.
  2. Requiring bidders to price their bids on the basis of both prevailing wage rates and competitive wage rates is an unnecessary burden to impose on bidders, given the fact the County is required, by law, to pay prevailing wage rates.
  3. Placing recommendations for award of contracts on the Board of Supervisor's consent agenda lessens the ability of the Board to critically examine the acceptability of the bids.

Possible Disincentives to Bidding and Low Bidder Turnout

  1. An unusually high percentage of the analyzed projects (62%) received less than 3 bids. This represents a lack of competitiveness which should be a cause for concern to the Board of Supervisors.
  2. The County's 4% preference for Amador County contractors does not appear to be a significant disincentive to out-of-county bidders.
  3. The County's requirements for bonds and insurance appear reasonable when compared with construction industry standards. Therefore, these issues do not appear to represent a disincentive to bidders.
  4. Although desirable in some cases, the requirement that bidders attend a pre-bid conference may impose an unnecessary hardship on out-of-county bidders, particularly on contracts which have a relatively low value.
  5. Unreasonably high liquidated damage amounts may be a disincentive to bidding.
  6. For Amador County projects, the elapsed time between the first public advertisement and the bid opening averages about 20 days. That fact, coupled with the lack of advertising in trade publications could be a factor in the low bidder turnout.

Use of Engineer's Estimates and Contract Cost Control

  1. The County does not require the preparation of an engineer's estimate on its projects. Because an engineer's estimate is considered essential to the proper analysis of bids, the County is unable to adequately evaluate the acceptability of contractor's bids.
  2. The relatively low value of change orders (3.3%) is significantly below the construction industry average. Therefore, it appears the County does an adequate job of cost control.

Adequacy of Existing County Policies Relating to Procurement

  1. Amador County Policy 5-200 is confusing in that it does not clearly delineate procedures with respect to the two categories of contracts; construction and professional services.
  2. Amador County Policies 5-200 and 5-100 cover many of the same issues related to purchasing and contract procurement. As a result, there is overlap which causes confusion.
  3. The GSA routinely requires architects and engineers to include prices in their proposals for design and planning projects.
  4. By requiring pricing information to be included in proposals for engineering and architectural services, the County is violating the provisions of California Government Code, Title 1, Division 5, Chapter 10, Sections 4525 through 4529.5.
  5. Selection of professional architectural and engineering services on the basis of demonstrated competence and professional qualifications represents sound fiscal policy and will, in the long run, be the most cost-effective course of action.

RECOMMENDATIONS

During the past three years, contracts totaling about $3,000,000 in value have been awarded by the County. Optimizing the process of advertising, bidding and awarding contracts has the potential of resulting in significant savings. Therefore, the following recommendations are made to improve the effectiveness of the County's contract administration process:

  1. The practice of requiring bidders to quote on both prevailing wage rates and competitive wage rates serves no purpose and should be discontinued.
  2. An engineer's estimate, prepared by the initiating agency, should be required on all projects. When projects are recommended for award to the Board of Supervisors, they should be presented as a regular agenda item to engender attention and discussion by the Board. The agenda submission for each recommendation of award should include a tabulation of the bids received and the engineer's estimate. Written justification should be required for award of a contract where the low bid exceeds the engineer's estimate by 5%. Written justification should also be required in the event of a single bid.
  3. The mandatory pre-bid conference should be eliminated, except in the case of an exceptionally high contract value, or for complex projects where it is obviously important for the bidder to visit the site of the work.
  4. Liquidated damage clauses should be eliminated, except for projects where the County would clearly be financially damaged by a delayed completion. Where imposed, liquidated damage amounts should accurately reflect the true damage that would occur due to late project delivery.
  5. Projects over $10,000 in value should be advertised in the Daily Pacific Builder, an industry trade publication, as well as the legally required newspaper advertisement.
  6. Projects over $10,000 in value should have plans and specifications deposited in Builders Exchanges in Sacramento, San Joaquin and El Dorado Counties.
  7. The time allowed for bidding should be increased to at least 30 days. For major projects, the time should be longer. The minimum legal requirement of 10 days is inappropriate for most projects.
  8. The practice of requiring priced proposals for professional engineering and architectural contracts should be eliminated.
  9. Policy 5-100 should be rewritten so that it addresses only those provisions relating to purchasing goods, supplies and materials. All references to contracts and agreements should be eliminated.
  10. Policy 5-200 should be rewritten. The revision should relate only to contracts. It should clearly separate the provisions of professional architectural and engineering services from construction contracts and spell out the unique provisions of the two categories of contracts. Revised Policy 5-200 should state that proposals for professional architectural, landscape architectural, engineering, land surveying and construction management services shall be evaluated solely on the basis of demonstrated competence and professional qualifications.

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