Request for Proposal. Too often large maintenance projects such as roof replacements, copper repiping projects, painting & waterproofing projects, etc., start with a "Request for Proposal" (RFP) from the board to various contractors. Boards ask contractors to propose how they would repair the association's roofs or paint their buildings. Each contractor then submits a proposal based on his own approach to the project. As a result, bids can vary significantly in the quality and quantity of materials used and how they are applied. That leads to large disparities in project pricing. Boards then pick a bid not realizing they may be selecting an expensive application of a shoddy product by an inexperienced contractor with little or no insurance and meaningless warranties. This could have serious legal consequences for the association (and the board).
Request for Bid. The best method for obtaining true bids is by using a "Request for Bid" (RFB). With an RFB, all vendors are provided identical specifications describing the scope of work, the quality of materials to use, how the work is to be done, levels of insurance required and a timeline for completion. This allows for true competitive bidding. To prepare a proper RFB and oversee the bidding, the board must employ the services of an independent consultant or construction manager.
Three Bids. There is no statute requiring three bids whenever a board authorizes projects. However, good business practice requires bidding for large projects. The threshold amount for seeking bids will depend on the association's budget. Associations with a $5 million annual budget will have a higher threshold before going out to bid than will associations with a $50,000 budget.
Small Projects. Boards will have difficulty obtaining bids for small repairs. Many contractors will not waste time preparing written proposals for a $500 repair. For routine plumbing repairs, most boards call a plumber familiar with the development and pay him as needed to repair leaks. This is an acceptable business practice.
Large Variances. Ideally, bids should be within 10% of each other. If there are significant variances, one of the bidders has made a mistake and improperly bid the project or is intentionally misbidding it. An unusually low bid may be undercutting legitimate bids and plans to substitute inferior materials or make up the difference with change orders. Boards need to investigate any large variances that may exist before making a decision.
Low Bid. Boards are not required to accept the lowest bid. The lowest bid is not always the best bid. The company may be small and inexperienced and may be operating on a shoestring budget with low levels of insurance, limited equipment, and minimal staffing. If someone quits or equipment fails, your project may suffer. With a more established company, the chances are better that the work will be done on time and within budget.
Contract Formation. Boards are allowed to review and discuss bids in executive session but may, if they choose, review and vote on them in open session. Once a bid has been approved by the board, the contract should be reviewed by legal counsel. After legal review, it can be signed--at that point, members have a right to inspect the contract.
Sample Policy. Boards should consider adopting a policy related to bidding. Following is a sample:
Management shall obtain three bids for all work over $_______. Contracts will not necessarily be awarded to the lowest bidder--contracts will be awarded to the best bidder as determined by the board. The requirement for three bids may be waived depending on the circumstances, i.e., whether the work is an emergency, the association has a long-standing relationship with a particular vendor who is especially knowledgeable about the building, changing vendors would disrupt existing warranties, and/or other vendors are not be willing to bid on the project.
Frequency of Bids. If an association already has a good company providing good services, the board is not obligated to force it to annually re-bid their services. This includes companies such as landscapers, elevator companies, management companies, security services, etc. Forcing them into an annual bidding cycle can lead them to view their relationship with the association as a short-term commitment rather than one into which they should invest time and energy. Annual re-bidding will also cause competitors to stop preparing and submitting proposals. They will view the annual dance as an exercise in futility.
If a company has been providing valuable services and has not exceeded CPI increases, the company could be in place for many years without going through a formal re-bidding process. Instead, management can spot-check industry pricing by making phone calls. Even if the board were to request new landscape bids on a 5-year cycle, it does not mean the board should switch companies if one came in with a lower bid. Switching to a cheaper company could result in lower-quality service. If the existing vendor is not the lowest bid but is competitive, the association benefits from continuity of relationship with a known entity providing reliable services--one that is already familiar with the association's policies and procedures.
BID SHOPPING
There are two types of bid shopping and both are considered unethical because of the unfair competition involved.
Pre-Award Shopping. The first type is called pre-award bid shopping and occurs when a board or manager receives bids on a project and instead of awarding the contract to the best bid takes the lowest bid without the contractor's knowledge or approval and discloses it to other contractors. The board or manager "shops" the bid in an effort to get new proposals below the original bid. At that point, the board may award the contract to a new low bidder or squeeze everyone again with another round of bid shopping.
Post-Award Shopping. The second type is called post-award bid shopping. This one is done by the general contractor after the association awards him the contract. It is done without the association's knowledge or approval. The general takes his subcontractors' bids and shops them in an effort to drive down the costs he quoted the association. He does not pass the savings on to the association. Instead, he pockets the difference.
Negative Impact. Using a legitimate bid to chisel down other bidders can significantly impact work quality. Contractors will cut corners by substituting cheaper materials and inexperienced labor in an effort to make a profit. Another problem is that most vendors will stop doing business with associations that bid shop.
Managers. The Community Associations Institute (CAI) does not directly address bid shopping but its code of ethics is broad enough to cover the practice. Paragraph 14 of CAI's Professional Manager Code of Ethics states that managers shall "Not engage in any form of price fixing, anti-trust, or anti-competition."
Spec Bidding. "Spec" bidding used by some associations is not the same as bid shopping. Boards that want to budget for a future project may ask one or more contractors to provide a "ballpark" bid on the project. The contractors are told up front the purpose of the bid.It allows the association to set aside funds for capital improvements. Once they get closer to the actual project, formal bidding can take place and a contract awarded. There is nothing unethical with this practice. Boards should to be aware that informal bidding for budget purposes may not be very accurate since specifications at this early state are generally very loose or nonexistent. As a result, there may be significant changes in the budget once the project actually goes to formal bidding.
Additional Information. See Bidding Mistakes and Construction Managers
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