Brian Allen, P.Eng., Director

* Ontario Pollution Control Equipment Association, Midhurst, Ontario

ABSTRACT

The municipal wastewater equipment supplier tries to service the industry satisfactorily through meticulous attention to the following:

. a competitively-priced quality product

. reasonable delivery

. responsive field service

. strong marketing and sales

. competent product design and application assistance

They all make good business sense. But today, attention to these is not enough. Other factors are involved that have resulted in less than satisfactory service to the industry. At the heart of the problem are the relaxed rules for bidding and current procedures for equipment selection. The Ontario Pollution Control Equipment Association (OPCEA) has analyzed these procedures and we have identified some problem areas. Our findings show that recommendations would benefit owners, consulting engineers, contractors, as well as equipment manufacturers.

KEY WORDS

Tender Format, Equipment Selection, Specifications

INTRODUCTION

Most municipal wastewater treatment equipment selections are based on capital cost. To be competitive, reputable and successful manufacturers are often forced to reduce costs, which sometimes means reduced quality. This is an indirect result of the basic premise that when public money is involved equipment specifications should not be restrictive. This makes it difficult for owners and engineers to specify the quality equipment they want. They may well end up with lower quality, poorer service, substandard performance and shorter life expectancy.

This paper examines various problem areas and the commonly used equipment selection procedures, illustrating their strengths and weaknesses.

Recommendations are also discussed, which give the owner/consultant control over the project and equipment selection, as should be the case. With increased owner/consultant control, higher quality equipment should be expected along with reduced maintenance costs.

AVAILABLE PROCUREMENT METHODS

Generally, seven procedures are now used by owners/consultants to obtain municipal wastewater equipment:

i. Pre-purchase

ii. Pre-selection

iii. Base Bid

iv. Base/Substitute Bid with Equipment Substitution Before Award v. Base/Substitute Bid with Equipment Substitution After Award Contract

vi. Conventional Open Bid

vii. Design/Build - an emerging trend which pretty much uses Open Bid format

(There are others, however they are generally derivations or combinations of these.)

Ideally, the best selection procedure should involve maximum owner evaluation, with undivided owner/contractor responsibility. It should also be inexpensive to administer.

FORMAT AND PROCUREMENT PRACTICES IN ONTARIO

Of the methods listed above, we find that generally two are the most widely used in our Province:

1) Pre-selection

2) Base Bid Variant - with or without "or equal"

The second is the most common, so it will be discussed in greater detail.

Pre-selection

Pre-selection is utilized frequently in our province to procure major equipment. In pre-selection, the consultant develops a performance spec.on a given piece of equipment. The terms and conditions dictate that prices must be held firm, usually for six months. Equipment vendors are advised that the successful contractor must "carry" the pre-selected vendor’s equipment with the identical price, terms and conditions, offered at the time of pre-selection tendering. At no time is there a contract or purchase order between the owner and equipment vendor. Pre-selection is only a statement of intent. The purchase order will come from the contractor.

We believe that pre-selection offers several benefits and we encourage its use, but it has limitations and may be applicable only to certain equipment.

Possible Advantages of this Procurement Format

1. Direct evaluation.

2. Aids in drawing preparation

3. Aids in efficiency & performance evaluation

4. Solves long delivery problems

5. Allows assessment of supplier’s service abilities

6. Allows product standardization (same brand)

7. "Packaging" is not possible

Possible Disadvantages

1. Divided responsibility (between contractor / supplier)

2. Costlier to administer, since it lengthens the overall project time

3. Interferes with the contractor/supplier relationship

4. Possibly higher prices as suppliers must keep their prices valid for a long time, at least 6 months

Base Bid Variant

In Ontario, the most common type of tender format used by consultants, appears to be one where the consulting engineer (often with the owner’s input) develops an equipment specification and bases it on the name of one or several manufacturers, possibly followed by the "or equal" phrase. This is a procurement procedure where the contractor, in his tender to the municipality, must incorporate the price of one of the vendors, usually the first named, as their base bid.

If an alternate vendor is thought attractive, the alternate’s name and price savings are submitted by the contractor after the tendering. Some contracts allow the names to be submitted up to one week after the tender. Specifications can require contractors to be responsible for any extra monies for engineering and design changes.

After the award of a contract, the owner reserves the right to choose any, or all, of the alternates submitted by the contractor. The alternates might offer some savings to the owner, but definitely will for the contractor. Knowledgeable owners and consultants will closely scrutinize any contractor selected alternate, however we often find that some owners and consultants may not oppose any such alternates.

We describe this tender procedure as a variant to the Base Bid format, because according to the Water Environment Federation publication, "Engineered Equipment Procurement Options To Ensure Project Quality" published in 1995, Base Bid does not allow for an "or equal" phrase nor allows for any alternates to be submitted.

This bid procedure usually works well, but the main problem that we perceive is the "or equal" and alternate provisions which are not very clear and defined.

Possible Advantages of this Procurement Format

1. Owner/consultant is usually able to control evaluation -- and equipment selection

2. Aids in drawing and specifications preparation

3. Provision for efficiency and performance evaluation when equipment is being selected

4. Provision to assess supplier service abilities

5. Not costly to administer

Possible Disadvantages

1. Vague "or equal" and alternate conditions

2. Contractors can abuse the format

3. Difficult definition / evaluation of "or equal" equipment

4. The above advantages can turn to disadvantages if "or equals" and alternates are not properly evaluated

5. Struggle as to who will pay for evaluation of "or equal", alternates

6. "Packaging" is possible

MAJOR AREAS OF CONCERN

We begin by listing the major problems the OPCEA has identified with the current procurement practices.

1) Poor screening of contractors on projects. A contractor should be financially sound and have established a good track record of previous performance in similar type projects. Allowing a contractor that is already on shaky financial ground to bid on a project creates potential for further problems. Problems can range anywhere from liens on the project from unpaid subcontractors, suppliers and vendors; to litigation, substantial delays in project completion, rework of poorly constructed work, and ultimately the waste of taxpayers’ money.

It may be preferable to pre-select the reputable contractors and sub-contractors.

2) Poor enforcement of equipment specifications. During the design stage, a consultant may confer with some reliable equipment suppliers and seek their expertise for properly and correctly describing equipment that is meant to perform certain functions. In return for this assistance, the consultant may name the equipment supplier in the specifications. Most consultants will specify equipment based on past experience of conventionally accepted equipment, good references and reputation. After the bid is closed, the contractor might submit a piece of equipment that is cheaper as a perceived equal. The equipment specs are not necessarily met by that piece of equipment, but many consultants do not want to create friction with the contractor on the project, so the equal but inferior piece of equipment gets approved. The original work done by the reliable equipment supplier is then unrewarded, almost penalizing the original equipment supplier for having high quality equipment.

Even though the technical specifications around one piece of equipment may be tight, and sole named without an "or equal" phrase, there is always a clause in the general conditions of the specifications that encourages alternate submissions.

3) Tender formats. The tender format will dictate what flexibility a contractor will have in supplying equipment. Many rules of current tender formats are not enforced, probably to allow the most flexibility to the contractors that are bidding. For the most part, contractors should provide information on who their subcontractors and major equipment suppliers are at the time of bid. Often, the contractors will not disclose which supplier is being carried, or don’t have to. This, of course, allows the contractor to keep his purchasing options open. Consultants and Owner should not encourage this to occur, as it is an unfair business practice.

4) Post bid shopping. We cannot understand why contractors are allowed to decide after the bid what equipment they will purchase. In post bid shopping, the contractor can force equipment suppliers to drop their prices by encouraging fighting among themselves. This is an unfair practice as the equipment price should be finalized at bid closing, and not after. The owners often never see any benefit from post-bid shopping, in fact they may get inferior equipment that was not specified. Because the contractor’s bid is already fixed, this practice results in increased profits for the contractors.

The "moment of truth" for the supplier occurs when the contractor is ready to purchase the equipment. Then, intense negotiation usually takes place, with only the contractor benefiting from the competition. Since the rules on the provision for alternates are very vague, and since they are not listed in the tender, the contractor is free to shop around after the contract is awarded. The contractor may be able to improve his margin by submitting equipment vendors that the owner/consultant has never heard of, by claiming that the vendors meet the interest of the specification.

Postbid shopping certainly creates the potential for and almost always ensures reduced project quality.

5) Packaging. Packaging occurs when equipment suppliers group several pieces of equipment together in a single package and price to Contractors. Some of the main pieces might conform with the specs, but some may be complete alternates. This is often an undesirable situation for contractors, owners and consultants, who feel they are being forced to accept an all or nothing situation, and this forces out some of the equipment suppliers who may be smaller or more specialized and cannot put an entire system together.

RECOMMENDATIONS

It is difficult to solve all these problems, but surprisingly, many of them could be addressed. The following recommendations were developed -- involving considerable input from the Ontario Pollution Control Equipment Association members:

3) Implement a new, suggested tender format where pre-selection is not required

We believe this last item, number 3, will go a long way in improving the current tender practices and conditions. The improved Form of Tender, which the OPCEA recommends, realizes existing system advantages, while encouraging competitive bidding. It also results in a lower contract price to the owner, and is not restrictive.

It utilizes a mechanism for alternatives to be bid, however only as alternatives and not substituting the named equipment. We believe that alternatives have their place, but they should be evaluated properly. With the common form of tender currently used, the contractor holds the equipment supplier "hostage" with the threat of submitting a cheaper alternate, perfectly allowed under the current format provisions, with no or little benefit to the owner.

How the new Form of Tender works (Table 1 - click here)

Three main components are included in the new format:

1. The First Named Equipment (the design standard)

2. The Named Acceptable Equivalent (if any)

3. The Alternate Equipment.

Contract drawings and specifications are based on the "First Named Equipment." The "Named Acceptable Equivalent" equipment is considered equal in quality and performance and must meet the design criteria. If any changes are required, however, to carry the "Named Acceptable Equivalent" equipment, the costs (or savings) are picked up by the contractor. The owner/consultant reviews the prices and guarantees, making the selection only after a proper economic and technical evaluation.

The choice between "First Named" and "Named Acceptable Equivalent" equipment is made on the Form of Tender as follows:

a) The contractor names the vendor carried in the contract price prior to tender closing.

b) If the contractor fails to name any vendor, the first name must be supplied by the contractor.

c) If more than one manufacturer is named, the contractor is obligated to supply the first name.

d) Alternative equipment. Obviously, alternate equipment (not included in the "first Named Equipment," or "alternate Acceptable") may appear more attractive to the contractor. The Form of Tender encourages alternatives by including an "Alternate Equipment" section in the Tender document. The contractor is encouraged to name alternate vendors and their benefits at the time of closing.

e) After award of contract, based on the "First Named" or "Named Acceptable Equivalent," the owner/consultant can pick up any alternate and adjust the contract price.

Possible Advantages of this Procurement Format

1. Aids efficiency and energy evaluation, lower maintenance costs as a result of the higher quality control by owner/consultant.

2. The elimination of owner’s liability resulting from divided responsibility.

3. A competitive bidding procedure, resulting in the lowest contract price with low equipment cost to owner.

4. The owner and consulting engineer can maintain quality and performance, control evaluation and obtain competitive bidding

5. The consulting engineer is not inundated with requests for addendums, allowing alternate bidders. Easy administration.

6. The natural relationship between the equipment supplier and the contractor is restored. The contractor can choose any equipment supplier based on installed cost, as well as price. The contractor clearly understands what is acceptable to the owner and consulting engineer, and there is no risk in offering unacceptable alternatives at the time of closing. Easy for contractor to execute.

7. Proprietary equipment (or equipment that matches existing equipment) can be dealt with by only including the first named in the Form of Tender. By following this procedure, the owner/consultant can maintain greater control.

8. Aids drawing preparation.

9. Discourages "packaging" from equipment suppliers.

Possible Disadvantages

None.

CONCLUSION

The OPCEA’s recommendations and new suggested Form of Tender are a workable alternative to current purchasing procedures. We hope that all parties (owners, consultants, contractors, as well as equipment suppliers) will express enthusiasm and support.

BIBLIOGRAPHY

Water Environment Federation (1995) Engineered Equipment Procurement Options To Ensure Project Quality - Alexandria, Virginia USA

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(Table 1)