[elvinyung]

I also like this analysis of general high infrastructure costs in America: https://pedestrianobservations.com/2019/03/03/why-american-c...

This tidbit is particularly infuriating:

> In California, the problem is, in two words, Tutor-Perini. This contractor underbids and then does shoddy work requiring change orders, litigated to the maximum. Ron Tutor’s dishonesty is well-known and goes back decades: in 1992 Los Angeles’s then-mayor Tom Bradley called him the change order king. And yet, he keeps getting contracts, all of which have large cost overruns, going over the amount the state or city would have paid had it awarded the contract to the second lowest bidder. In San Francisco, cost overrun battles involving Tutor-Perini led to a 40% cost overrun. This process repeated for high-speed rail: Tutor submitted lowest but technically worst bid, got the contract as price was weighted too high, and then demanded expensive changes. It speaks to California’s poor oversight of contractors that Tutor remains a contractor in good standing and has not been prosecuted for fraud.

Edit: oh, wait, just realized this is from the same blog, so the same body of work.

[kazinator]

Ah, but in what way is the under-bidding contractor the problem?

Who gave the contract to the contractor?

The problem is the process of going for the lowest bidder, or one of the lowest.

Moreover, in this case, incredibly, going for the same low bidder with the knowledge of all the history of the bids from that contractor being unrealistic lowballs and requiring costly change requests.

Don't blame the contractor. They get the job and make their money. From their angle, they are successful. They know that the city is aiming for the bottom and so they adjust their bidding accordingly. If they didn't submit a low bid, the job would go to someone else.

True story: some decades ago. My father was bidding on a contract with the GVRD (Greater Vancouver Regional District). Something in the tens of thousands of dollars, probably. He was out-bid by $5. That was all they cared about. So he pulled out a $5 bill and plonked it on the table.

If you ever drive in Vancouver, Canada and wonder how the roads can be so shitty, remember that story.

[tshaddox]

> The problem is the process of going for the lowest bidder, or one of the lowest.

The phrase "lowest bidder" gets a lot of mileage in jokes and social commentary, but I'm pretty sure that the original idea is "the lowest bidder who fulfills the requirements of the contract." In that context it's a pretty obvious process, not something to be feared or mocked. The contract should be "build X to exactly these specifications," and of course the contract should be given to the lowest bidder who can reasonably be expected to fulfill the contract.

In this case, the contractor is clearly unable (or unwilling, or unincentivized) to fulfill the contract, and thus the contractor's bid should be irrelevant. The contractor should not even be considered. After all, if it's fine to not fulfill the terms of the contract, then I'm confident I could submit an even lower bid.

[wahern]

I think the issue in California is that this particular contractor's M.O. is notorious to state officials, but nobody has completed whatever formal processes are required to establish the contractor as disreputable, permitting officials to readily reject their bids in subsequent projects. There has to be a formal process because the whole point of anti-corruption regulations is to remove discretion from individual officials, but state officials aren't being diligent on the backend of that process.

The underbidding contractor is at least one half of the problem because they're serial fraudulent bidders--they have it down to a science. IMO they're flat out the problem from an ethical standpoint. You don't get to cheat somebody just because you've figured out how to exploit a victim's infirmity (the infirmity in this case being the state's bidding rules). You can't shift your blame to the victim; whatever blame the victim is due is independent.

[kasey_junk]

Lots of places have legal requirements to take low bid contracts. This was largely an anti-corruption measure as it was deemed easier to get work out of a low bid contractor than an accurate accounting out of a corrupt process.

But now there exist a whole class of contractor that exist purely to provide the lowest possible level of compliance with municipal contracts. They spend more on legal defense than construction in many cases.

[kelnos]

Certainly CA shares blame for not managing their contracts better (whether due to incompetence or malice).

But it's unethical behavior to be a contractor who intentionally under-bids with the plan to later (repeatedly) charge exorbitant amounts for modifications and fixes.

The government isn't doing its due diligence, but I take a dim view of people who exploit and waste taxpayers' money.

[jobu]

> The problem is the process of going for the lowest bidder, or one of the lowest.

As a homeowner I usually try to get three bids on a project and then take the middle. In my experience the lowest bidder usually doesn't understand what you want or has no idea what they're doing.

[consp]

This is basically the problem with IT Contracts in the Netherlands at the moment (though it is getting better due to proper oversight). Lowest bid winners with no technical knowledge on the proposal side to include the technical challenges in the process. Resulting in expensive shoddy work projects which always overrun in cost due to several factors (design change, minimal/poor work, non extensible etc). The problem is that the overruns are by design as they know there are little to no penalties involved which keeps the companies in the loop for far more than the original sum.

[mc32]

Do what they used to do in the old days. You pay 50% now and the rest in X decades, so long as it meets some minimums set in advance. This would eliminate under bidding. It might put financially weak vendors sag a disadvantage but them’s the breaks.

[Frondo]

Another way to do this involves a shift from lowest-cost purchasing to best-value purchasing. Under lowest cost guidelines, the agency cannot take any factors but price into consideration, leading to this garbage. With best-value, they can look at the contractor's past performance in making a determination. Slowly, agencies are making the change, but a lot of them are still required by guidelines to go with the lowest bid.

[jlmorton]

Another way to avoid this is with a Design-Build-Operate contract.

The transit agency is on the hook for the agreed construction cost, and for ridership estimates and minimums. If ridership does not develop, then the contracting agency is responsible for making the operator whole.

The contractor is on the hook for the design, build and operation of the system for N years.

The worst possible way to design a large, complex system is the way most US transit agencies do it: the agency operates as the prime contractor, and it issues an initial design subcontractor, which submits an alignment and maybe a 20% design. Then the agency issues bids for each segment, and the new contractor completes the design.

[i_am_proteus]

Could anyone comment on whether or not awarding contacts to the second-lowest bidder (whose bid meets technical merit) has ever been practiced by governments? Or other alternative auction strategies.

[jcranmer]

Most competent contracting doesn't go for lowest-cost bidder. Rather, bids are generally scored for some metric, and a good contracting agency should additionally be evaluating the contractors to figure out if they actually are capable of performing their bid without cost overruns.

One of the contentions of Alon Levy [author of the blog in question] is that the primary reason for inexcusably high costs in the US is the hollowing out of agencies to the point that they can't do this sort of evaluation anymore.

[markus92]

I got no source for this, but I've heard about this happening before on European construction projects (lowest 2 bidders being excluded for being too low).

[epanchin]

Tender price submissions should be weighted by previous estimates vs reality.

[munk-a]

This may work for obvious bad actors but would probably penalize genuine new market entrants.

[BeeOnRope]

Seems like that would also be subject to gaming.

[fzeroracer]

Generally speaking this remains true in government contracting as well. Back when I used to work in that sphere the government always went for the lowest bidder. This is usually billed as a way for the government to be fiscally responsible but usually the result is that they get back poor software with the contractor embedding themselves deep into the design and a huge pricetag on actually fixing the damn thing.

That among many other issues is where I realized that the way competition works in this scenario simply doesn't work when the incentive is to keep yourself and your company on the government's payroll rather than write quality software.

[usr1106]

The hot thing in Finland at the moment is the alliance project model. I'm not an experienced expert in the field so I cannot explain it to detail. The newspaper explanation is that the buyer (city council or similar) form a common organisation and share risks and costs. I must admit I was sceptical when it first came up and assumed that either they end up in quarrel or they will find common excuses for the 3-fold costs in the end. But so far I have been wrong. A road tunnel was completed about in time and only exceeding the budget by a relative small percentage (which they explained with added requirements during project lifetime). A tramway project is not complete yet, but so far there have heen only good news about the progress and budget, which is not typical for such a project.

This is the marketing explanation by the contractor: https://www.yitgroup.com/en/media/why-is-the-alliance-contra...