As the FHWA has now contacted most transportation agencies regarding improving their analysis methods for detecting and preventing anti-competitive bidding, the question now becomes what this specifically means for your agency.
In many cases, when guidance comes from FHWA, it refers to the expected final outcome without specifically designating how the agency is to get there. This approach makes some sense in that there can be many different paths to a desired result, and one would not want to rule out workable solutions. FHWA many times offers suggestions and identifies tools that can aid the agency in accomplishing the outcome. But the agency needs to take ownership of the process to achieve the result.
The single recommendation from the OIG to FHWA had two parts. The first was, “…that State DOTs conduct frequent, regular, systematic reviews of procurements made over multiple years using specific statistics to identify anticompetitive bidding patterns…” We will begin with this part.
In order to fully understand the FHWA intentions, we suggest agencies prepare themselves for that discussion. This can be accomplished in four steps: Identify, Evaluate, Make a Plan, and Discuss.
Identify your Agency’s Process: Identify the steps your agency goes through to assess bids and the bidding process. This should include all assessments: pre-award, during construction, and after the project is finaled out. Are you looking at activities in specific projects or groups of projects to analyze the overall market? This analysis needs to include not only the activity, but also the frequency. How often are these activities performed? What tools are you using to perform these activities, i.e., AASHTOWare Project Data Analytics, in-house developed tools, etc.? What resources are available to perform this work? What is done with the results of these activities?
Evaluate the Process: What is good about your process? What might be improved? How would you evaluate the efficiency of your activities? Would better tools or more resources improve your outcomes? What are your desired results; are you achieving them? Why or why not? What happens after your assessments are completed? Do you believe your efforts are reducing costs? Do you share your processes with other agencies?
Make a Plan: Once you have identified and evaluated your current processes, try to identify how they might be improved. The FHWA memo mentioned they will be coordinating with AASHTO and “other interested parties” to see where improvements might be made. All agencies are part of AASHTO. Take advantage of the tools it already has available, in addition to the contacts your agency has with other agencies that are being asked to do the same thing. Be ready to share your plans with FHWA.
Discuss with FHWA: Finally, set up a meeting with your FHWA Division Office to discuss your proactive approach to identify where your agency is and where you will be going in the future. Then everyone is on the same page. Initiating a meeting with FHWA removes the reactive connotation that might exist if you do nothing until you hear from them. Both parties can come away with a win regarding your plan to improve your bid assessments going into the future.
The second part of the recommendation from the OIG states as follows, “…to the extent practical, reduce reliance on historical data when developing engineer’s estimates.” This part of the recommendation in and of itself can raise a multitude of discussion points. If the OIG’s assumption is correct that there is a major issue with complementary bidding among our states, it would follow that the bid-based estimates used as a benchmark to analyze bids could be “tainted”.
So, how does your agency address this part of the recommendation? I would suggest that agencies no longer refer to big, thick, hard copies of bid tabulations to put together an engineer’s estimate. There are a myriad of ways to vet historic prices to glean a database that would “scientifically” produce a bid-based estimate that would be reliable in analyzing bids. The agency should be able to explain its process to FHWA and the reasoning behind it. This certainly needs to be a part of the discussion with them.
Taking this one step further, the OIG is intimating that using cost-based estimating techniques can “reduce the reliance on historical data”. Most people would agree that this would be a valuable tool to include in the estimating process. But the biggest concern is the amount of time and resources it would take to accomplish it. There are, however, a number of agencies that do use cost-based estimating as part of their process. Most will tell you that, after the initial set-up, the time and resources needed to maintain that method are not that much different than those to perform a reliable bid-based estimate.
We would suggest that the agency be prepared to discuss that possibility when you meet with FHWA. One approach would be to begin creating a very small number of cost sheets that address the major costs of your projects, like paving. These sheets would be used, not to replace bid-based estimating, but rather to supplement it with a check and balance comparison of the methods. This process ultimately creates a much better comfort level for your benchmark estimates as they are used to evaluate bids for award.
In conclusion, FHWA, at the urging of the OIG, would like transportation agencies to improve 1) methods for assessing contractors bid to assure value for the money we spend, and 2) find additional estimating methods that will reduce concerns that (some) bid-based estimating techniques might bring toward diminishing the value of those assessments.
We recommend agencies take a proactive approach to FHWA’s concerns by identifying and evaluating your current processes, devising a plan for improvement, and sharing it with your local FHWA Administrator. And, finally, don’t do this in a vacuum. Use AASHTO and the combined knowledge of the agencies that have the same challenges as yours.
Concerning the estimating process, agencies need to show that their bid-based estimating techniques continue to advance and that the data is properly vetted. Agencies should also consider using some cost-based estimating techniques, at least for some of the major cost items in a project. Using both techniques together would provide for a well-rounded process.
Author
Jeff Hisem
Senior Strategy Analyst
Jeff’s career with the Ohio Department of Transportation focused on assuring that limited public funds were being utilized in the most efficient manner to get the greatest possible amount of highway work accomplished. He spent 36+ years leading estimators and analysts to ensure transportation dollars were being spent properly. Their responsibilities included producing benchmark project cost estimates to analyze contractors’ bids, analyzing project costs during construction, and analyzing construction markets across the state to monitor bidders and bidding activity over time. After retiring from the Dept. of Transportation, Jeff joined the Infotech team as a Senior Strategy Analyst focused on ongoing software improvements to improve the estimation process and to aid agencies in their attempt to improve the analysis capabilities of their construction cost data.