October 10, 2023
The world of construction is no stranger to the term "race to the bottom." It's a phenomenon that has plagued the industry for years, with clients often striving to secure the lowest possible price for their projects. However, as the saying goes, "You get what you pay for," and this approach to construction tendering has often resulted in mistrust, disputes, and subpar quality and safety outcomes. In this blog post, we'll explore the concept of the race to the bottom in construction tendering and why a shift towards procurement reform and alternative price evaluation models is crucial, as argued by Rebecca Rees.
Back in 2018, Dame Judith Hackitt made a significant observation – that procurement plays a pivotal role in shaping the entire construction project. If a client's primary focus during procurement is to secure the lowest price, it sets the stage for an array of issues down the line. These issues often manifest as mistrust between parties, disputes that can hinder project progress, and, most concerning of all, poor quality and safety outcomes.
Many public sector clients might vehemently argue that they don't base their procurement decisions solely on the lowest cost. They'll point to their tender documents, which include lofty ideals such as social value objectives, net-zero aspirations, end-user engagement initiatives, and digitization requirements. Moreover, they'll emphasize that they have evaluation weightings in place, giving priority to quality over price – often stating, "we never go lower than 60% quality/40% price."
However, there's a critical nuance to consider. It's not just the weight assigned to price that matters; it's how price is evaluated that truly shapes bidders' behavior and, ultimately, sets the price for the project. When the lowest-priced tender consistently earns the highest marks available, it creates a perverse incentive. Bidders, in their pursuit of victory, are driven to reduce their prices to the absolute minimum.
One might argue, "Why is this an issue? Shouldn't clients aim for the best quality at the most cost-efficient price, especially when they're spending taxpayer's or shareholder's money?"
While the intent to obtain value for money is laudable, the race to the bottom in construction and demolition tendering poses several significant problems:
1. Quality Sacrificed for Cost: When the focus is exclusively on cost, it often comes at the expense of quality. Contractors are compelled to cut corners, use cheaper materials, or reduce their workforce to meet the low price demanded.
2. Safety Compromised: Safety can be compromised when cost becomes the overriding factor. Shortcuts that compromise safety standards are taken, putting workers and the public at risk.
3. Innovation Stifled: A myopic focus on cost minimisation stifles innovation. Contractors are less likely to propose innovative, albeit slightly costlier, solutions that could ultimately improve the project's long-term performance.
4. Relationships Under Strain: The race to the bottom fosters an adversarial atmosphere between clients and contractors. Mutual trust is eroded, often resulting in disputes and project delays.
To break free from the damaging cycle of the race to the bottom, a fundamental shift in procurement practices is essential. Clients must move away from a myopic focus on lowest price and explore alternative evaluation models that foster cooperation, quality, and innovation.
1. Emphasizing Value over Cost: Clients should prioritize the overall value delivered by a contractor, considering not just the immediate project cost but the long-term benefits, including durability, energy efficiency, and reduced maintenance costs.
2. Performance-Based Contracts: Performance-based contracts can incentivize contractors to deliver higher-quality work. Payment structures can be tied to performance metrics, ensuring that contractors are motivated to meet and exceed project objectives.
3. Early Contractor Involvement: Involving contractors early in the design phase allows for collaborative problem-solving and innovative solutions, encouraging contractors to propose value-added ideas rather than merely competing on price.
4. Balanced Evaluation Criteria: Clients should revisit their evaluation criteria and ensure that price is not disproportionately weighted. Other factors, such as technical competence, experience, and quality of proposed solutions, should carry significant weight in the decision-making process.
The race to the bottom in construction tendering has been a long-standing issue, undermining the industry's potential for excellence. To create a brighter future, clients must embrace procurement reform and alternative price evaluation models that prioritize value, quality, and innovation.
It's time to shift the focus from the lowest price to the right bidder for the project. By doing so, we can escape the damaging cycle, build trust, and ensure that construction and demolition projects deliver on their promise of quality, safety, and long-term value. Ultimately, this approach benefits not only clients but also the communities and individuals who rely on the outcomes of these projects.
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