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11/20/2011

ACEC Ohio asks legislative committee to reject "reverse auction" bill

A bill that would allow local governments to use internet-based "reverse auctions" to procure engineering, architectural and construction services is a recipe for disaster that should be scuttled, ACEC Ohio Executive Director Don Mader told a legislative committee last week.

In testimony to the Ohio House of Representatives' Local Government Committee, Mader said House Bill 246, sponsored by Rep. Kristina Roegner (R-Hudson), would lead to more claims and litigation on public works projects, rather than saving money, as its proponents contend.

Proponents attempted to insert the reverse auction authorization into the general fund budget bill (H.B 153) earlier this summer, but ACEC, working with other construction industry organizations, was able to defeat that initiative.  Shortly thereafter, Roegner introduced H.B. 246.

Mader said ACEC Ohio was primarily opposed to the bill because it would allow local governments to use the reverse auction to procure engineering and architectural services.

"Imagine going to the internet and trying to retain the services of a highly skilled surgeon, or an attorney to defend you in a lawsuit, or a CPA to give you financial and investment advice," he said. "Most of us wouldn’t harbor the thought for a minute.

"But this bill proposes that you allow local governments to try to retain an engineer to design that bridge over the river, or that municipal water plant, using an eBay-type process called the reverse auction.  The very idea defies common sense."

He warned that if the General Assembly were to pass the bill in its current form, allowing "design" services to be procured by reverse auction, it would be in direct conflict with Ohio's Qualifications-Based Selection statute.

The QBS law requires that on public works projects, state and local officials must evaluate the qualifications of competing engineers and architects, select the most qualified designer, then negotiate a contract that clearly specifies the services to be provided and the cost of those services.

While the reverse auction is a terrible way to try to obtain engineering or architectural services, it is no better suited to the procurement of construction services, he told the 23-member committee.

"In the reverse auction process, contractors must submit not just their lowest and best bid, they then have to keep cutting that price and cutting that price and cutting that price in order to win the project," Mader said.  "It’s a dangerous race to the bottom that encourages – in fact, requires – contractors to cut as many corners as possible in order to win the job.

"Even in the best of conditions, when you have a good set of plans and a good contractor, construction is a complex and complicated process, involving lots of risk, both physical and financial," he said.

"Attempting to drive construction costs down to unreasonably low levels will inevitably lead to more disputes and more claims and more litigation – and in the end, higher costs – on public works projects."

While the reverse auction may be a useful system for procuring  commodities, "it would be very bad public policy to allow local governments to attempt to procure very sophisticated, complex and complicated construction services by reverse auction," Mader said.

Andrea Ashley, vice president of government relations for the Associated General Contractors of Ohio, told the committee the driving force behind the bill is a company that wants to sell reverse auction software to local governments.

While proponents cite the savings offered by the reverse auction process, Ashley told the committee the software is very expensive.  Moreover, the bidding scheme doesn't require competing bidders to submit their very lowest and best price, just a price that is lower than other bidders.

In fact, she said, one AGC member found "that the only project he had bid using a reverse auction was one of his most profitable projects because he was awarded the project for a dollar amount much higher than he would have provided in a sealed bid."

Representatives of the Ohio Contractors Association and the Construction Employers Association of Northeast Ohio also testified against the bill.


Advancing the Business of Engineering