Are you Selecting the Best?

Selecting the right contractor. This is easier to say than to do. Every facility owner needing to build or renovate a facility is faced with trying to assemble the best design and construction team. They usually hire the design team first and do so with a qualifications based selection. For a variety of reasons (schedule being the most common), the contractor selection is increasingly being made based on something other than a low bid. The question is what to use as the basis of the contractor selection.

Best value bid or qualifications based selection?
When the contractor selection is based on something other than a low bid, the first question is should the facility owner make their contractor selection based on a process that includes some weighting of the total construction cost, or not?

Best value bid
If the answer is yes, to include the total cost of construction as part of the contractor selection criteria, then the type of selection being referred to is increasingly being called a “best value bid.” About half of the industry would refer to it as a variation of the design-bid-build delivery method, and the other half would refer to it as type of construction management at-risk.

Using a best value bid approach involves a host of challenges for the facility owner including:

1. What information will be used by the contractor in estimating the total construction cost?
2. When should the contractor be hired?
3. How complete should the design be at the time of contractor selection?
4. How much weight should be put on the total construction cost?
5. Will the contract be a lump sum or not-to-exceed price?
6. Are changes likely after the contractor selection?
7. How are contingencies and potential cost savings handled?

There are risks associated with each of these issues. There are also proven approaches that are available to mitigate the risks associated with each of these challenges.

Qualifications based selection (QBS)
If the answer is not to include the total cost of construction as part of the contractor selection criteria, then the type of selection is considered to be a “qualifications based selection” (QBS). If there were no element of price, then many would refer to this as a “pure qualifications” based selection. However, it is important to note that even when a contractor’s fees and/or general conditions are part of the selection, if the total construction costs are not, the industry would still refer to the selection as a qualifications based selection.

Lessons learned on contractor selection
For many facility owners, learning how to select a contractor on something other than the objective criteria of low price presents a new set of challenges. They are now faced with how to evaluate the subjective criteria such as the contractor’s past performance and their team’s experience. Which criteria should be used? How much should it be weighted? How should it be scored? Who should participate in the evaluation and when? They now face the challenge of how to buy value.

The good news is that there is extensive experience available in the industry now on this subject. Most owners use a multistep process including a request for qualifications (RFQ), a shortlisting, a request for proposals (RFP), another shortlisting, an interview and a final evaluation and selection. There are numerous examples and recommended practices available for each of these steps.

There are several lessons learned that every owner could benefit from when they are using a qualifications based contractor selection to buy value. These include:

An example might be on a project with an aggressive schedule and a significant penalty if it is not available for occupancy by a date certain. In such a project, the firm and their team’s proven ability to meet aggressive schedules is likely to be one of your heavily weighted criteria for final selection. It will likely be more important than their proposed fees.

Learning to buy value can be a challenge, especially for those who have only used a low bid price to select their contractors. The State of Georgia recently created guidelines on how to select a CM at-Risk (CM/GC) using a qualifications based selection (http://www.ganet.org/gsfic/const_manual.html). Though they are based on the requirements of a public owner, the guidelines contain a wealth of good information including a sample check list of final selection criteria (see page 45, Appendix 11.)

The key to using a qualification based selection process is to use the experience of those who have served on selection committees and gone through the process numerous times before to help anticipate how the entire process is likely to go. With the benefit of this planning, successfully implementing a selection process of a contractor that will add the most value can be accomplished successfully by almost anyone.