Municipal contracts: savings come at a price
Oddsmakers would love the city of Montreal.
What are the chances that a firm would submit precisely the same bid as a rival company on a municipal contract, down to the penny? Try: $ 1,546,988.63.
And what are the odds that the firm would do that twice, the second time being against a different rival?
And now ask yourself what the odds are that on the first contract, a third firm puts in precisely the same bid as the city ’s internal estimate, down to the cent?
And imagine if the same firm pulled off that feat a second time on a different contract.
They’re anomalies that in theory should never crop up in competitive public contract bids.
Yet it has happened multiple times on professional services contracts awarded by the city of Montreal in the past 15 months, an analysis by the Montreal Gazette of 135 of such contracts since January 2014 shows.
And the reason that companies have bid precisely the same prices is as simple — or as simplistic — as the tender documents the city uses to put its contracts out for bids.
The city telegraphs the price it’s willing to pay on professional services contracts in its tender documents.
It happened as recently as Wednesday, when the city executive committee approved a professional services contract to a communications firm to co- ordinate the city’s project to redo Ste- Catherine St. W.
Unlike construction and supply contracts, where the lowest conforming bidder wins, Quebec law requires municipalities to award contracts for professional services, such as communications, engineering and architecture, through a jury selection that is supposed to choose the most qualified and reasonably priced firm, and not just the cheapest.
However, as the Montreal Gazette reported last week, the mathematical formula municipalities are obliged by the Cities and Towns Act to use to calculate final scores for professional services contracts is contrived to allow the low price bid to prevail over higher bidders with better quality scores.
In the case of the Ste- Catherine St. contract, the winner was the lower of two qualifying bidders that also got the lower quality score.
A jury had given AGC Communications a technical score of 73 per cent for the quality of its bid, compared to 81.17 per cent for the losing bidder, Transfert Environnement et Société. ( A passing grade is 70 per cent.)
However, AGC Communications had submitted a lower price of $ 395,877.03.
The losing bidder, meanwhile, had submitted exactly the same price as the city’s internal estimate: $ 475,427.95, including taxes.
It was hardly random given that the city had written the maximum hourly rates it expected to pay for personnel supplied by the winning firm into the tender documents, along with the estimated hours of work.
The winning firm cut its price. The loser, it appears, did not.
The city set a maximum hourly rate corresponding to market salaries to avoid getting bids at an excessive price, city spokesperson Philippe Sabourin said. It’s not uncommon, he said.
Still, the example raises further questions about Quebec’s system of awarding professional services contracts at the municipal level since the system favours cheapest price over quality, experts say.
“I can honestly say that the consultant selection methodology used for municipal contracts in Quebec is the worst that I have seen,” said Patrick Martin, a councillor and commissioner of public works for the city of Westmount and an engineer with 40 years of experience. He’s worked in Canada and over 50 countries for the United Nations, the World Bank and different governments.
“The cost savings of hiring the cheapest consultant are minuscule in comparison to the construction cost overruns that result from poor quality design. And application of the provincially imposed formula almost always leads to the selection of the cheapest bid, which is also usually the lowest quality team.”
Martin was until recently vicechairman of Montreal’s contracts review committee, which serves the city and the agglomeration council that includes island suburbs like Westmount.
Various engineering firms contacted by the Montreal Gazette said it’s well known that the city establishes its internal estimate for engineering and architecture contracts based on two provincial decrees that set the maximum hourly pay rates for junior, intermediate and senior engineers and architects working on provincial contracts.
However, provincial- level public contracts in Quebec are awarded by qualifications- based selection, with no price bids. The decrees exist to negotiate the price of work once the most qualified bidder is chosen.
At the municipal level, the provincial formula allows the low bid to trump the quality scoring, so the process encourages a reverse auction for the lowest price, the firms said.
“It’s not impossible that two companies give you the same one number,” Martin said of engineering firms that will wind up cutting the maximum hourly pay rate in the provincial decree by the same percentage to win the contract. Some recent examples: In the first of two engineering contracts the executive committee approved on Feb. 11, SNC- Lavalin Inc. and Consultants S. M. Inc. both bid $ 1,546,988.63, including taxes, which was the lowest bid and 11.4 per cent below the city ’s internal estimate of $ 1,745,320.50. The highest of five qualifying bidders was WSP Canada Inc., which bid exactly the city’s estimated price. SNC- Lavalin, with the highest quality score of the group, 75.7 per cent, and the tied lowest bid, won.
WSP Canada bid precisely the city ’s internal estimate of $ 1,454,433.75 on the second contract awarded on Feb. 11. The winner was Consultants S. M., which had the lowest bid.
On an engineering contract in September, SNC- Lavalin submitted the same bid as Beaudoin Hurens Inc., $ 760,407.97, including taxes and contingencies. The bid was 17.18 per cent below the city’s internal estimate of $ 918,134.78. SNC- Lavalin had the highest final score of four bidders. However, the civil service report didn’t mention their quality scores.
WSP Canada’s bid was the same as the city ’s internal estimate on a contract last May to perform inspections on road infrastructure in 2014 and 2015. The bid, $ 512,496.75, including taxes, was the highest of seven qualifying bids.
WSP told the Montreal Gazette it bid at the city’s internal estimate in each case because it used the salaries set in the provincial decree. As a policy, it said, it refuses to slash its prices to win contracts.
Consultants S. M., for its part, said it’s an aggressive market so it’s forced to compete on prices. The contract in February saw it bid the same as SNC- Lavalin because the bidding documents set the minimum the city expected to pay for the work, $ 600,000, and asked the bidders for just one figure: the percentage above the minimum that the firm wanted to bid. Even that was capped, at 150 per cent.
The city, however, insists it doesn’t always establish its estimates that way. It depends on the context, the city ’s Sabourin said, and so the city’s estimate is never really known to the bidders.
The problem lies with the selection process for professional consultants at the municipal level, Martin said, and the “stupid” formula in the Cities and Towns Act that makes cheapest price the prevailing factor.
No firm will get 100 per cent on the quality score, he said, and the passing grade is 70 per cent. So typically the spread between the lowest and highest scores is no more than 10 points, and they’re typically between 75 and 85 per cent, Martin said.
The formula in the Cities and Towns Act calls for 50 to be added to that score, which is then divided by the price bid.
Adding 50 to 75 or 85 per cent leaves the total quality score at 125 or 135. As a result, the typical difference between the top and bottom score is at most about seven per cent.
“So anyone who bids eight per cent less ( on price) than the other guy can win,” Martin said. “So it’s a question of seven or eight per cent, every time.”
It’s not complicated for firms to slash their price bids to win the contract, he added.
“They put in a super curriculum vitae ( for their top engineer) to win the job and then pull them out,” Martin said.
“They bid a lower price maybe knowing that the high- priced guy they put in the proposal isn’t going to be there for two years. He’s only going to be there for four months. They know they’re going to replace him with someone cheaper.”
Or a firm may propose only the minimum- qualifications to meet the city’s selection criteria, he said. For example, if the bidding documents ask for personnel with 10 years’ experience, “you put in the person with exactly 10 years’ experience, not the person with the higher salary who has 15 years of experience ... But if you knew that price was not involved, you would put in your best people.”
In the end, however, a municipality will pay more for going cheapest price on professional services, he added.
A poorly handled or incomplete design phase leads to more change orders and unforeseen glitches in the construction phase for which the city will pay more consultants and higher construction costs, Martin said. Operating costs, he said, could wind up higher as well.
“You have to find a balance between quality, which will guarantee ( the project) will last a long time, and price,” said Montreal city councillor Émilie Thuillier, who heads the contracts review committee. “Is the level of quality worth the price or is it more expensive and the quality isn’t that high? It’s difficult to judge.”
Thuillier’s committee has been troubled by some excessively low bids that have won professional services contracts, she said. The committee has repeatedly asked the executive committee to broaden its mandate so it can follow- up on contracts after they’re approved to find out whether extras were paid and whether there were delays. Her committee is always refused.
“We need to have the tools to be able to judge after the contract is awarded whether we were right to go with the lowest conforming bidder,” Thuillier, a member of Projet Montréal, said.
Another problem is there are cases where the city knows the lowest bidder has poorly performed on previous municipal contracts but Montreal doesn’t factor in past performance in the bidder’s score and as grounds to reject a bidder, she said.
Incredibly, she said, Montreal has yet to put into effect a law passed by the Parti Québécois government in December 2012 that would allow it to do just that.
To put Law 8 into effect, the city needs to set up a grid as specified in the law to evaluate a company’s work on a contract given by the municipality.
“At the moment,” Thuillier said, “the city still hasn’t given itself the tools to be able to do this.”