How a Badly Needed New Firehouse Proved the Danger of Low Bids
A construction project with no pre-qualification process burns through money
A few years ago, a group of business and tradespeople in a small but growing midwestern U.S. town needed a bigger firehouse. They understood from personal experience how the world works, but because of pressure from the town they opened the project to all bidders and didn't use a prequalification process. The low bidder, $at 2.5 million, was a contractor with a reputation for being difficult to do business with. The business and tradespeople suspected the contractor was not qualified, but they had not required any prequalification process to screen bidders.
They should have known better.
I have been in construction almost 60 years and have had too much experience with low bidders to even let one near my property. Selecting based on a low bid practically guarantees you will end up with the least qualified contractor for your project and that it will cost you more in the long run in return for which you will get lower quality and more headaches.
The scheduled 12-month job began with difficulties over building department inspections, work that had to be torn out and lots of arguments. The volunteer inspector for the fire company and the architect's inspector were intimidated by, and no match for, the overbearing and aggressive contractor, who claimed that with a lump-sum contract he could build as he saw fit and that the owner's only concern should be the finished product. Complaints about deficiencies and out-of-spec construction were ignored and grievances built up while new work was put in place on top of work not yet accepted.
Among many others, there were notices that walls were in the wrong place and that the elevator did not fit in the shaft. Just about everyone threw up their hands. A sewage catch-basin that failed municipal inspection was so deficient it had to be replaced. The contractor just backfilled it and paved over the basin. Each time the owner tried to stop progress payments, the contractor threatened to abandon the project and sue. As work fell further and further behind, the town's desperate need for a bigger firehouse played into the contractor's hands. In effect, the town became a victim because its own contractual deadline requirement undercut its bargaining power with the contractor.
When the building was completed, the municipality refused to issue an occupancy certificate. There were electrical deficiencies, the replaced sewage catch basin failed inspection and the roof and many windows leaked. The list was far too long to itemize here. Suffice it to say, the project was delivered six months late, and an independent consultant's estimate to correct the deficiencies, needed to get an occupancy permit, exceeded $1.5 million.
How could that be?
Keep in mind it is usually more costly to take something out and repair or replace it than to just put it in new. Over 50 windows were not installed correctly. They were not installed in according to specification, so the manufacturer's guarantee would be unenforceable unless corrected. This fix alone was priced at $240,000.
The main electrical panel, which was fully wired, was undersized and had to come out and be replaced. The main staircase was 5 in. in the wrong location. And of course, the replaced precast concrete sewage manhole with inlet and outlet piping attached, covered entirely with 4 ft of dirt and paved over, has to be replaced.
There's more. The roof had to come off and be replaced. There were structural steel lintels over the top of 50 windows that were incorrect or in need of repair. All of the precast windowsills and copings on the building were out of specification.
This is not the end of the story. The fire company used all the funds it had, along with the building funds raised over years, for the construction of the new firehouse. It is now struggling to make the mortgage payments on the millions they borrowed and there is no money available to make any of the $1.5 million in repairs needed an occupancy permit. It will be years until this comes to trial, but that is contingent on whether or not the fire company can continue to pay their lawyers.
Role of Surety Misunderstood
You may ask where the surety was in all this. Apparently none of the parties to the contract understood there was a bond or what it was for. There is now some question as to whether a claim can still be made under the surety bond's notice provisions. The bond would not likely have prevented the nightmare, so if it pays for the consequences, does that mean the nightmare never happened? Does it mean that design-bid-build does work?
Unfortunately, the nightmare does not end here. The actual events I have described happened in 2014, and in 2015 the project was delivered supposedly ready for occupancy. As I write this in 2018, no one has occupied or used the facility for any purpose. However, ongoing carrying costs continue for insurance and security.
Sophisticated buyers of construction services don't use the design-bid-build process to select contractors because it simply does not work. The old joke that the bidder that makes the most mistakes gets the job no longer is amusing because it is way too close to the truth. The low-bid process doesn't work. Notice that I do not blame the low bidder, who performed as he always had. A sophisticated buyer of construction services would say the contractor performed in a predictable manner. If an appropriate best-value contractor selection had been conducted, the contractor's consistently poor performance history would have been discovered and the contractor would have been screened out.
The big question is: Do you want the low bidder anywhere near your project?