The recent announcement by the City of Winnipeg that it will move to a price- and qualifications-based purchasing process from a purely price-based system for waste-collection services is good news and bad news at the same time.
While it’s good the city is finally abandoning the lowest-bid (usually also meaning lowest-quality and lowest-value) process, it only took half the step it needs to.
Other jurisdictions around the globe have long since abandoned low-bid and price-based request for proposal (RFP) processes and adopted qualifications-based selection (QBS) for complex and custom services.
QBS is a process for hiring contractors similar to the process used when hiring permanent staff, in that it is based on qualifications to do the job and the budget (like salary in the case of staff) is disclosed by the hiring organization before the competition begins. Once the most-qualified firm has been identified through a competitive request for qualifications process (similar to job interviews), a negotiation takes place between the firm and the buyer, using the previously disclosed budget as the starting point. In this way, there is no incentive for vendors to “fill out the bids to quote low and then… submit change orders” (Free Press, March 10), usually resulting in huge project cost overruns.
Have you ever wondered how a contract can be awarded to refinish a building for $139 million and then see the actual price turn well north of $200 million before it’s done? The procurement process often plays a role and under a typical low-bid RFP-awarded construction project, cost overruns are more than three times higher than QBS-awarded construction projects.
Since 1972, federal legislation (Brooks Act) in the United States has made it illegal to use price as any part of the decision process when selecting architects or engineers for U.S. federal government projects. Since then, 46 states have adopted state-level versions of the legislation — and the reason is simply that when you try and save a few bucks at the front end of big projects by choosing contractors on low price (even if price is only a small percentage of the decision weighting) you inevitably get less, but pay more over the long run.
Have you ever wondered why Manitoba’s almost undrivable and constantly under-repair Highway 75 south of Winnipeg magically becomes as smooth as glass when you cross into the United States? QBS-based selection of the engineers and contractors in the U.S., compared to low-bid RFPs in Canada, likely played at least some role in that. It certainly isn’t geography or weather.
Since 1972, numerous studies conducted by American public-sector users of QBS have clearly identified that using qualifications with a negotiated price (QBS) instead of a low-bid RFP (no matter how low price is weighted) to select vendors brings greater cost certainty, lower procurement costs, lower long-term operating costs, greater end-user satisfaction and greater opportunities for innovation to municipal infrastructure projects and services.
Everybody wins when we focus on quality instead of low price.
Internationally, QBS is identified as the global best practice for purchasing architecture and engineering services (and is easily applied to other services as well) identified by the National Institute of Governmental Purchasing and the Chartered Institute of Purchasing and Supply in the U.S., U.K., Australia, South Africa, Middle East and China.
Moving to a QBS process for professional services and contractors doesn’t require new money (except possibly some limited funds for initial training), it doesn’t require new legislation, new people, new studies or new government departments.
Moving to value instead of low price just requires a commitment and direction by Canadian politicians to catch up with the rest of the world and bring a tried, tested and true process to government procurement. In the process, Canada will save billions of dollars of taxpayer money each year, while at the same time improving the quality of infrastructure and services.
The good news is, with Winnipeg’s announcement, we are headed in the right direction.
The bad news is, in a day and age where “innovation” is all the rage, Winnipeggers and Canadians should be ashamed that even with this “big step forward” we still remain 44 years behind our largest trading partner on something as simple and easy to change as buying on quality and value instead of low price.
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Cal I want to thank you for your wonderful presentation and thought you gave to our industry. It was very valuable and very interesting. - Alberta Conference