CONSTRUCTION LAW NEWS
Construction Procurement for Public Schools
By: Henry E. Steck
Procurement of Construction had dramatically changed for Texas public school districts. New laws were passed which authorize school districts to award construction contracts by methods other than traditional competitive bidding. A substantial portion of new school construction has been awarded under these new guidelines.
Traditionally, Texas school districts were required to use competitive bidding to select contractors to perform major construction and renovation projects. Full and open competition on detailed specifications was believed to result in the lowest price for public school construction. The Texas Legislature recognized, however, that the cheapest price does not always equal the best value. Laws passed in 1995 and 1997 providing Texas school districts greater discretion to award contracts to obtain the “best value.” Senate Bill No. 1, passed during the 1995 session, specified eight procurement methods available to school districts, including “competitive bidding” and “competitive sealed proposals”; but did not provide regulatory guidance for their use. Senate Bill No 583, passed in 1997, provided definitions and procedures for these new procurement tools.
Competitive Sealed Proposals
Senate Bill No. 583 requires a school district using competitive sealed proposals to issue a request for proposals (“RFP”) that includes the construction documents, the selection criteria, the estimated project budget, the project scope, schedule and other information that the contractors may require to respond. It is a mandatory requirement of the statute that the district:
(1) state the estimated budget in the RFP,
(2) state the selection criteria in the RFP,
(3) publicly open and read the name and monetary amount of each proposal received, and
(4) within 45 days after opening, evaluate and rank each proposal received in relation to the
published selection criteria.
The statute permits a district to discuss proposals with offerors after they have been opened to allow for clarification and changes; provided adequate precautions are taken to ensure that information from competing proposals is not disclosed to other offerors. This means that the district may request additional information from offerors and allow them to supplement or change their proposals during the evaluation period.
Once the evaluation and ranking are completed, the statute requires the district to select the proposal that offers the best value to the district, based on the published criteria and its ranking evaluation. The district may then discuss options for cost reductions with the selected offeror. If the district is unable to reach a contract agreement with the first ranked offeror, it is required to terminate discussions and open negotiations with the next ranked offeror. This process continues until an agreement is reached or all proposals are rejected.
The key to successful use of competitive sealed proposals is an objective and rational evaluation plan that properly weighs price and non-price factors.
Senate Bill 583 also changed the requirements for Texas school districts using competitive bidding to procure construction work. The new law provides that a district using competitive bidding shall award the contract to the bidder offering the best value to the district according to the selection criteria selected by the district. A district may use both price and other non-price factors (as listed in the statute) as selection criteria. Since non-price factors may be used in the selection of the best value, lowest price in not determinative. The statute specifically states that a contract must be awarded at the price bid - this means that price negotiations between bid opening and contract award are prohibited in competitive bidding.
Senate Bill 583 imposes a different requirement on universities using competitive bidding. Universities are still required to award competitive bids to the lowest responsible bidder.
Senate Bill 583 is not as detailed in its treatment of competitive bidding as it is with competitive sealed proposals. There is no requirement that the selection criteria be published in the Invitation for Bids (“IFB”). There is no requirement for an evaluation and ranking of bids. Nevertheless, good practice dictates that any non-price evaluation criteria that will be used should be stated in the IFB. This informs bidders of the selection criteria and an lessen or avoid later disputes regarding contractor selection.
Recommendations for Selection Criteria and Evaluation to “Recommendations for Selection Criteria and Evaluation”
This Committee recommends that the following guidelines be considered in establishing selection criteria and evaluations.
1. Price and non-price factors should be evaluated separately: While the statute is clear that the district is not restricted to considering price alone, price is still an important factor in selecting a contractor. In its evaluation, the district is required to select the proposal offering the “best value” to the district. The term “value” is not defined in the statute; however, an evaluation of expected benefit relative to price is inherent to the concept of “value.” A proposal with little probability of meeting the district’s requirements would be of no “value” even at a deeply discounted price. On the other hand, when various proposals all are reasonably likely to meet the district’s minimum requirements, but have qualitative differences or manageable differences in risk, a selection based on “best value” must measure those differences relative to differences in price. For this reason, the selection criteria should be grouped into the following two categories: (i) price and (ii) non-price.
2. Ratings for non-price factors should be descriptive standards not numeric standards: There should be descriptive standards stated for the ratings and numeric ratings should be avoided.
Numeric ratings (i.e. 1 - 10) pose a number of problems. Such ratings mean nothing without standards describing the numbers. Also, if individual ratings assigned are to be added together to determine a “total score,” the increments should have some uniform meaning (i.e. a “10” should be ten times as good as a “1” or the difference between a “4” and “7” should be worth the same as a difference between a “7” and “10”). If a rating for one item below a certain number (a”5” or “4”) means the offeror fails to meet the district’s minimum requirements for a necessary characteristic, then that proposal would be of no value regardless of how high a score it received on other items. These problems can be minimized by using qualitative category ratings, rather than numeric ratings. An example is:
Exceptional — High probability that offeror will exceed the district’s requirements and industry standards for the factor with no risks and no significant weaknesses.
Acceptable — High probability that offeror will meet the district’s requirements and industry standards for the factor with little risk and no weaknesses that are not correctable with ordinary management and administration.
Marginal — Significant probability that offeror will fail to meet the district’s requirements and industry standards without significant management and administration effort.
Unacceptable - Offeror fails to meet the district’s requirements and industry standards.
The rating assigned for each category should include a short narrative supporting the rating.
3. Non-price factors should not be duplicitous: The non-price selection criteria should not be duplicative (there should not be a number of criteria that measure the same thing). “Has the offeror constructed similar projects?”, “Are the offeror’s personnel experienced in similar projects?” and “Has the offeror constructed similar projects for the District?” may all be measuring the same thing. Each selection criteria should measure one important characteristic. If some characteristics are deemed more important than others, a weighing should be applied.
4. Information requested should be relevant to selection criteria: The RFP should ask offerors to submit information that is relevant to the selection criteria. Usually, a Contractor’s Qualification Statement, AIA Document A305 should contain all information necessary. Nevertheless, the district should review the published criteria against the information requested to be sure that relevant information is solicited for each evaluation criterion.
5. Supplementation of information: During the evaluation process, offerors that are rated “unacceptable” or “marginal” on critical, non-price criteria should be notified of their perceived deficiencies and provided an opportunity to supplement their proposal or provide additional information within a specified period. Because of time limitations, this period may be relatively short.
6. Evaluation of proposals: After the evaluation of the non-price factors is concluded, the proposals should be ranked by value considering the prices and the evaluations on the non-price factors. The final ranking of proposals should be made or approved by the district’s governing body. Normally, a lower priced proposal that is rated “acceptable” or higher in all essential non-price categories should not be displaced in the ranking by a higher priced proposal; although it is possible that the district may determine that qualitative differences between technically acceptable proposals warrant relatively small premiums in price. Whenever this occurs, there should be a narrative explanation of basis for determining that the higher price proposal offered the district greater “value.”
For construction of public schools in Texas, being the “lowest responsible bidder” will no longer guarantee award of the contract. School districts can also consider other non-cost factors. This discretion will expand opportunities for quality-conscious contractors with reputations for completing projects on time, within the project budget. School districts will have the discretion to select contractors who will provide the best value to their taxpayers. To achieve this goal, district administrators and their architects will need to establish a rationale framework that fairly considers value, the quality the taxpayer receives for the price he pays.