In early March, FHWA issued a memorandum to DOT administrators focused on addressing anticompetitive bidding patterns and estimation best practices.
With a subject line of “ACTION: Analysis Methods for Detecting Potential Anticompetitive Bidding,” the goal of the memo is to encourage frequent analysis of recent procurements. The exact recommendations, issued by the Office of Inspector General (OIG) following a recent audit, are as follows:
- Conduct frequent, regular, and systematic reviews of procurements made over multiple years, using specific statistics, such as those identified in the OIG report, as a means of identifying potential anticompetitive patterns. OIG notes that using consistent statistics across projects over the review period will improve this identification effort, and
- Reduce the use of historical data when developing an engineer’s estimate, to the extent practical.
The full contents of the audit report can be found here.
Highlights reveal a few troubling findings:
- At least a third of contracts analyzed in the audit were potentially affected by complementary bidding
- The additional cost of flagged contracts ranged from 5.2% to 10.2% higher than a competitive range
- The estimated cost increases across these flagged contracts amount to $1.19 billion
It’s important to note that the FHWA isn’t saying that state DOTs are simply doing nothing to combat anti-competitive bidding practices. At Infotech, we regularly work with agencies that dedicate time and resources to bid and market analysis to identify and prevent collusive activity. At the same time, FHWA is suggesting that DOTs need to increase the frequency of procurement analysis to work from an updated, reliable set of data.
The memo also makes a point about “reducing the reliance on historical data,” which can be read as an endorsement of cost-based estimation over historical bid-based estimation. Rather than looking at the overall project cost for an activity like placing asphalt content, cost-based estimation seeks to understand that cost by examining every component that goes into that work item, ranging from materials to labor.
In a 2022 FHWA report entitled “Assessment of Federal Highway Administration Highway Project Cost Estimation Tools,” the organization had the following to say about each methodology – the bolded emphasis is our own:
Historical bid-based estimation—uses a bid-history database to estimate unit bid costs for major items. Based on the historical averages, FHWA can use the estimated quantities of a proposed project to develop a target price. Much of this approach’s accuracy relies on the quantity and level of detail in the bid-history database.
Cost-based estimation—involves estimating the cost for items of work based on the cost of each component of a project, considering the associated labor, equipment, and materials costs… When prepared with the proper skill, experience, and effort, cost-based estimates are usually considered the most accurate of the five methods.
Based on the recent memo’s recommendation to avoid reliance on historical bid data, we can infer that the audit of agency bid-history databases found that the information within isn’t reliable for producing accurate engineer’s estimates. At the same time, we can read FHWA’s desire for agencies to be “enhancing their bid analysis procedures” as an endorsement of frequent data analysis and cost-based estimation methodologies.
Resources and recommendations
If your agency received this memo (you should have, given the March 14 deadline for distribution) and you are not quite sure where to get started, the below resources and recommendations may help.
Resource: Understanding the Benefits of Cost-Based Estimation Whitepaper
This whitepaper examines the cost-based estimation methodology, its associated benefits, and what goes into producing an accurate estimate. If you are an agency that is seeking to understand why your estimates don’t line up with the bids you receive, or why your current estimation method may not be consistently reliable, this whitepaper is for you.
Resource: West Virginia Asphalt Paving Market Analysis and Case Study
In 2016, Infotech worked with the West Virginia Department of Transportation to analyze their asphalt prices. The analysis revealed that WVDOT had much higher asphalt prices even though, due to its asphalt mixes, prices should have been lower. These findings supported a lawsuit that resulted in a $101.35M settlement in favor of West Virginia – the largest antitrust settlement in state history. This case study serves as an example of why frequent analysis is so important.
Recommendation: Explore AASHTOWare Project Estimation™
AASHTOWare Project Estimation is part of the AASHTOWare Project unified software suite. The module is designed to deliver accurate, reliable estimates for your construction program. It supports total cost estimation, including the assessment and assignment of risk contingency, life cycle analysis tools, expansion of existing import/export capabilities, the ability to utilize snapshots to create an audit trail for the agency’s estimates, and the inclusion of non-bid costs, non-construction costs, and markups. If you are looking for a software solution for conducting systematic, cost-based estimation, this module can meet your needs.
Recommendation: Explore Infotech Data Services
If you are trying to find resources for conducting an analysis of the last few years of procurements, Infotech can help. We work with agencies to pull actionable insights out of mountains of construction project data. From cost indices to market analysis, our analysis answers essential questions that help agencies gain process efficiencies, provide value, and mitigate risk.
Questions we help answer include:
Are you noticing any suspicious bidding patterns, such as:
- Identical bids
- Rotation of winning bidders
- Courtesy bids
- Unusually high bids
- Withdrawal of bids
- Specific geographic patterns
Are you noticing any suspicious contractor behavior, such as:
- Limited competition in your area
- Joint ventures
- Subcontractor patterns
- Communication between bidders outside of official channels
We can perform Market Analysis, Cost Index Services, and Award vs. Actual Cost Analysis to identify potential anticompetitive patterns and meet the requirements of the FHWA memorandum. If you have any questions, feel free to contact us.
Authors
Nate Binder
Digital Marketing Manager
A proud graduate of Florida State University, Nate works with subject matter experts and sales professionals to produce targeted marketing collateral.