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Bid Preparation Stipends Are Worth the Price

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In September, the Ohio Dept. of Transportation will award an estimated $450-million design-build contract to construct the I-90 Innerbelt Bridge in Cleveland. Three design-build teams will be waiting anxiously for the results to come in. For one team, it will be a major coup. The two other teams can console themselves with a sizable stipend for all their work drafting plans. Or maybe not.

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The Innerbelt Bridge is one of the first major design-build projects undertaken by ODOT. The three short-listed teams are composed of high-profile firms. The Federal Highway Administration estimated the total design costs for the project would be in the $13.5 million to $27 million range and that the teams would spend about 35% of this cost developing technical proposals.

To get the best out of the proposals, ODOT announced in March that it would grant each of the two losing teams a $1-million stipend to defray part of the bid cost.

That decision started the fireworks. Local newspaper stories questioned whether giving stipends to losing bidders is a wise use of taxpayer dollars.

The issue was then taken up by Ohio Inspector General Thomas Charles. He questioned the amount of the stipends and even whether ODOT is allowed to pay them under Ohio law. Beyond that, Charles stated, “Given the economic climate in this nation and the state of Ohio, we believe that firms should be expected to assume both the risk and potential reward of bidding on the Innerbelt Bridge project.”

If public agencies want the most innovative and costeffective project approaches as well as the best and the brightest firms bidding, they are going to have to compensate losing bidders.

Charles suggested that ODOT should get specific legislative authorization before granting any further stipends and should demand documentation of bidders’ expenses before paying the full stipends in this case. Since then, ODOT has agreed to require expense accounting from the losing teams.

Many top designers are skittish about design-build in an open bidding context because of the costs of preparing the bid and the risks of losing the bid. Spending millions on bid preparation is a lot to risk on a chancy proposition for a narrow-margin business.

In an economy in which public agencies are cash-strapped and budget deficits provide fodder for election rhetoric, bid stipends make for an easy target. But if public agencies want the most innovative and cost-effective project approaches as well as the best and the brightest firms bidding, they are going to have to compensate losing bidders for at least a part of their bid preparation. To do otherwise risks getting cookie-cutter proposals from cookie-cutter firms.

 

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