Prequalification of Bidders for Public Works Projects

Introduction

Background and Research Problem

For years, the public owner has been faced with many challenges in an attempt to ensure that projects are completed successfully – on time, within budget, and meeting quality standards set forth in the contract documents.  One method of improving construction performance is to prequalify general contractor and subcontractor bidders.  Prequalifying bidders is the process by which the owner, or a team of individuals selected by the owner, screens the candidate constructors according to a given set of criteria prior to any competitive bidding or price negotiations.  The objective is to determine a contractor’s competence to perform the work in a satisfactory manner should they be awarded the contract.

The Public Works Law (Title 39, 1997) as amended on April 22, 1997, now acknowledges prequalification as an acceptable practice for public works projects in Alabama.  Although the Alabama Building Commission neither endorses nor discourages the practice of prequalification, they requested that a research team create a set of guidelines taking into account the best practices of prequalification from other southeastern states.  These guidelines would then serve as a basis for building committees that solicit construction bids infrequently, such as local school boards.  To achieve this goal, individuals from academia, private industry, and government service were chosen to conduct the necessary research.  Those serving on the research team included:

Literature Review

Since 1964, the standard prequalification document for use in commercial building construction has been the AIA Document A305 (AIA, 1986).  Nevertheless, while the traditional AIA A305 served as the basis for the new Alabama prequalification guidelines, information was also extracted from studies conducted by Jeffery S. Russell.  Russell has conducted numerous studies on prequalification of bidders and has published several journal articles on the subject (Russell, 1990; Russell & Skibniewski, 1990; Russell, Skibniewski, & Cozier, 1990; Russell & Jaselskis, 1992; Russell & Skibniewski, 1998).  Russell (1996) has compiled the highlights of these and other journal articles into a book titled Constructor Prequalification – Choosing the Best Constructor and Avoiding Constructor Failure.  It is an invaluable reference for anyone interested in prequalifying contractors.  However, the research team was charged by the Alabama Building Commission to go beyond traditional literature searches and gather information, procedures, and guidelines from specific individual state building commissions and government agencies.

Research Methodology

Instrument – Request for Information

In order to collect information from public works sources, a request for information was sent to various state building commissions.  The responses were collected and filed into 3-ring binders for analysis and reference.  The requests were primarily sent to southeastern states – Alabama, Tennessee, Georgia, Florida, Mississippi, Louisiana, Arkansas, Texas, Kentucky, North Carolina, and South Carolina.  However, as information was received, the research team was led to other sources of information in Maryland, Kansas, Virginia, and Missouri.  This information was then organized and labeled as Source Documents.   The authors then analyzed the source documents and prepared a rough draft of prequalification guidelines from the synthesis of information.  The authors met with the entire research team on a biweekly basis to review the rough drafts of the guidelines and to make necessary changes.

The authors also received other relevant literature in response to a separate request for information that was sent to various state departments that handle construction projects.  Table 1 shows the various departments from which information was received as a result of this request.  In addition, the authors reviewed section 39-2-4 of the Code of Alabama, and other prequalification formats from the private sector.  Two of the most significant private sector responses came from the United States Postal Service (USPS) and the Federal Express Corporation (USPS, 1988; FedEx, 1998).

Once the prequalification guidelines were in a rough draft format, the authors made several trips to visit construction firms in order to review the guidelines and solicit suggestions from practicing construction professionals.  This was imperative because the guidelines were to be implemented in Alabama where many of the firms bid work.  The contractors who provided feedback were: Brasfield & Gorrie, Connor Brothers Construction Company, Parker Building Company, Bailey-Harris Construction Company, Doster Construction Company, and Hoar Construction Company.  The representatives of each of these contractors indicated that the proposed prequalification questionnaire was very thorough, yet simple and concise.  The contractors stated that they are familiar with submitting much more elaborate questionnaires and would have no trouble submitting this form in a timely manner.  Also, the reaction of each contractor was favorable toward the overall idea of prequalification.  In fact, they all expressed the desire to have public prequalification implemented as soon as possible.  They felt that, by eliminating the unqualified competitors, competition would be better and quality would improve for the taxpayers.

Analysis and Implementation of Prequalification Guidelines

The following paragraphs outline the items that were identified by the research team as crucial to the successful creation of prequalification guidelines for Alabama.  However, these items could be used by any state or public entity that is interested in prequalifying construction bidders.

Evaluation Team

The Alabama Building Commission suggested that the owner’s evaluation team should be comprised of two owner’s representatives and the design professional of record.  The owner’s representatives may be a construction manager, city engineer, county engineer, superintendent of education, facilities manager, teacher, or outside awarding authority.

Evaluation Criteria

The research team decided, based on the fact that the owner’s evaluation committee would typically be somewhat unfamiliar with procuring construction services, that the best approach to prequalification would be the one with the least amount of subjectivity.  Many different forms were analyzed in an effort to compile a set of questions that would be best suited to meet the prequalification needs of public works projects in Alabama.  Some owners showed a very specific interest in equipment (AL DoT, 1998) and others had an interest in safety (Union Camp, 1997).  There was some interest in specific insurance types and coverage (FedEx, 1998) and others had a specific interest in minority business enterprise participation and commitment (USPS, 1998).  The researchers decided that because these matters have specific requirements set forth in the contract documents, there was no need to request extensive information concerning such topics.  The decision of the research team was to ask only basic questions, such as: “Does your organization have a written safety program?”, “Is a copy available upon request?”, and “What was your EMR for the last three years?”

After analyzing the source documents, the research team felt that the evaluation process would be much easier to conduct if there were a standardized form to fill out (Appendix A).  Since the format of each contractor’s data is identical, the evaluation team will be able to spend less time looking for information and more time evaluating it.  Also, the authors arranged the questions in the guidelines in such a way as to receive a more structured response, thereby making the analysis easier for the evaluation team.  The key elements that were developed for the Alabama guidelines were:  General Information, Experience Record, Financial Status, Employee Qualifications, Safety Performance, and References.

Collecting Contractor Data

Section 39-2-4 of the Code of Alabama states that, for projects in excess of $50,000, the advertisement for prequalification must be published once a week for three weeks in a newspaper of general circulation in the county or counties in which the project, or any part of the project, is to be performed.  For projects in excess of $500,000, the notice must also be published at least once in three newspapers of general circulation throughout the state (Title 39, 1997).  The advertisement for prequalification must inform the contractors where the prequalification information can be reviewed and obtained.  Also, it is recommended that the last advertisement for prequalification be published five weeks prior to the bid date.  This allows one week for the contractors to complete and return the forms, two weeks for the evaluation committee to review the forms and contact references, and two weeks for the qualified applicants to bid the job.  This process is illustrated in Figure 1.

Analyzing Contractor Data

Due to the inherent nature of the projects that will necessitate the use of these guidelines, the Alabama Building Commission recommended that the owner prequalify bidders on a project-by-project basis.  However, the research team recommended that annual prequalification of public works projects may be appropriate for an owner that expects to bid several similar projects within a given year.

The data that the evaluation committee collects will be analyzed from both a qualitative and a quantitative perspective.  Much of the information provided by the contractor is subjective and therefore will be analyzed qualitatively.  The rest of the information, however, will be analyzed quantitatively using models similar to those used by the United States Postal Service (USPS, 1988).  The owner will also evaluate the contractor's financial statements in order to make projections about the future.

Qualitative

It is important to thoroughly review the items provided in the contractor’s qualification packet that relate to current projects and previous projects that were similar in scope.  Also, replacing key personnel is a sign of danger.  This is a key factor that an owner should be aware of when evaluating the quality of a contractor.  Because the plans are often not complete at the time of prequalification, the research team chose not to require the contractors to submit a specific construction team that would staff the project should their company be awarded the contract.  Depending on how much time elapsed between the prequalification process and the notice to proceed, many changes could take place within a company.  However, the recommendation was that each contractor would submit a list of key personnel who may staff the project as well as the resumes of those key personnel.  Since any individual on this list may be appointed to this project, the owner’s evaluation committee should make certain that each one of the individuals on this list has the necessary skills to carry out the work properly. 

Quantitative

Some aspects of the prequalification data will be evaluated as pass or fail.  For example, any firm who does not have a general contractor license to do business in the State of Alabama, will be refused the right to bid.  Also, if an applicant has a negative net worth, the application will be rejected.  Should either of these situations arise, there is no need to analyze the data any further.  The applicant will automatically be disqualified.

The recommended method to be used in the quantitative analysis for public works projects in Alabama is similar to that presented by the United States Postal Service (USPS, 1988).  However, the scale has been changed to a five point scale: 5 = excellent, 4 = good, 3 = average, 2 = fair, 1 = poor, 0 = unacceptable.  Prior to analyzing the contractors’ data, the first step that the owner’s evaluation committee should decide upon is the minimum score that will be acceptable for a bidder.  The recommended procedure for determining this value is to enter the lowest rating that is acceptable for each given component into the evaluation matrix and multiply the rate of each given component by its corresponding relative weight.  The sum of these products will be the lowest minimum acceptable score.  An example of this is shown in Appendix B.  The Minimum Acceptable Score that would be acceptable for bidders prequalifying on this hypothetical project would be the sum of the scores of the individual components, or 925.  Note that the total points possible in the Weight column does not have to be 100.  Therefore, the relative worth of each individual component can be adjusted rather easily without being concerned about decimal values or percentages.

The evaluation matrix can be modified to address the unique needs of the owner just as the questionnaire can.  The example matrix found in Appendix B lists all of the key elements corresponding to the questionnaire (Appendix A) and weights them according to their relative importance.  While analyzing the contractor-supplied data, the evaluation committee is able to rate the contractor on each key element according to the 5-point scale mentioned previously.  The rating for each item is entered into the first column under the heading that correlates to each contractor.  The rate is then multiplied by the relative weight for that item and entered into the last column relating to that particular contractor.  Then, the sum of the products of the rates and the weights will yield the total rating, just as before.  Since Bidder A falls below the acceptable value, the score would not prequalify the bidder for this project.  On the other hand, the score for Bidder B is sufficiently above the minimum acceptable value; so Bidder B would be deemed qualified to bid.  Although Bidder C only misses the mark by one point, the score is not sufficient to be qualified on this project.  However, bidder D would qualify with a score of 925, which is equal to the minimum acceptable score.

Notifying the Applicants

After the Owner’s evaluation committee has analyzed each questionnaire, made all necessary contacts, and has determined the appropriate ratings, the committee should notify the contractors, in writing, as to whether they have been prequalified or not.  Since Section 39-2-4 of the Code of Alabama states that once a bidder has been prequalified, they are deemed “responsible” for purposes of bidding (Title 39, 1997).  Those that are prequalified will be able to obtain bidding documents and begin to prepare estimates immediately.

Legal Recourse

Since the Alabama Public Works Law states that it is mandatory to publish the evaluation criteria, one could easily falsify the information to meet the criteria.  Contractors, that the authors interviewed, suggested that legal recourse be added to the questionnaire in order to ensure that the information is legitimate.  The research team decided that a signatory statement similar to the one in the AIA A305 would be added, along with a requirement for notarization.  Nevertheless, the evaluation committee should carefully verify all information provided by conducting reference checks.

Disclaimer

The contractors, who were interviewed by the authors, felt that it was important to state that no representation is made about the results of prequalification.  It should be noted that, although prequalification certainly helps eliminate many problems, it is not infallible.  It is, in fact, possible that even though an owner may go to great lengths to prevent failure – unfortunate situations do occur.  These guidelines do not guarantee the success of any project.  Nevertheless, it does eliminate the contractors with the greatest likelihood of failure.

Conclusions and Recommendations

Previous research shows that, on average, prequalification accounts for about 1% of the total cost of a project, and the payback has often been astounding (Russell, 1996).  In fact, since the USPS implemented their prequalification program in 1988, they report studies revealing an average increase of 4.5 % versus their previous method of postqualifying contractors, which resulted in project cost increases of 10% to 15% (Russell, 1996).  Overall, the USPS reports having reduced cost escalation and improved schedule, which are two of the primary reasons for implementing the system.

Future possibilities for research regarding prequalification of bidders may include computerized applications.  Public owners could improve the process outlined in this paper by making the guidelines accessible on the Internet.  Furthermore, the format provided in Appendix A can be used not only to prequalify general contractors, but subcontractors as well.  Specific-need questionnaires (to be used for owners that are particularly interested in safety, schedule, etc.) may also evolve from further research. 

The implementation of prequalification guidelines will enable those who are entrusted with public funds to make responsible decisions regarding which contractors are qualified and which contractors are not.  From interviews conducted with various contractors throughout Alabama, the authors found that the practice of prequalification was readily accepted and, in fact, anticipated for public works projects.  Therefore, having a prequalification process and consistent guidelines will hopefully cause public owners in Alabama to put forth the time and effort to prequalify bidders and help alleviate substandard quality, late completion times, and cost overruns.

References

AIA. (1986). AIA Document A305 – Contractor’s Qualification Statement, 1986 Edition. The American Institute of Architects.

FedEx. (1998). Request for Qualifications. Construction Services Federal Express World Headquarters.

Russell, J. S. (1996). Constructor Prequalification – Choosing the Best Constructor and Avoiding Constructor Failure. American Society of Civil Engineers Press.

Russell, J. S. (1990). Model for Owner Prequalification of Constructors. Journal of Management in Engineering, ASCE, 6(1), 59-75.

Russell, J. S., and Skibniewski, M. J. (1988). Decision Criteria in Contractor Prequalification. Journal of Management in Engineering, ASCE, 4(2), 148-164.

Russell, J. S., and Skibniewski, M. J. (1990). QUALIFIER-1: Constructor Prequalification Model. Journal of Computing in Civil Engineering, ASCE, 4(1), 77-90.

Russell, J. S., Skibniewski, M. J., and Cozier, D. R. (1990). QUALIFIER 2: Knowledge-Based System for Constructor Prequalification. Journal of Construction Engineering and Management, ASCE, 116(1), 157-171.

Russell, J. S., and Jaselskis, E. J. (1992). Predicting Construction Contractor Failure Prior to Contract Award. Journal of Construction Engineering and Management, ASCE, 118(4), 791-811.

Title 39 (1997). Code of Alabama, 1997 Amendment.  Section 39-2-4, Filing of guaranties by bidders; prequalification procedures and criteria; responsibility of prequalified bidders; revocation of prequalification; rejection of bidder. p. 96-98.

Union Camp (1997). Contractor’s Review and Evaluation Form. Union Camp Corporation, Corporate Engineering Division.

USPS (1988). Pre-qualification Criteria, United States Postal Service.  Procedure 210.25 – Advertising for Prequalification Statements, Procedure 210.35 – Advisement of Prequalification, Procedure 210.30 Evaluation of Prequalification Statements, Procedure 210.20 – Prequalification Planning. HB RE-14, TL-1, August 1988.

Appendix A - Contractor's Statement of Qualifications