April 11, 2007
Peel's tender practices under fire
Contractor says retender cost region more in the end
An Oakville-based sewer and watermain contractor that was the winning bidder on a $4.2 million contract in the Region of Peel still came away a loser.
FCM Construction Limited was low bidder on the contract for the construction of a sanitary sewer on Coleraine Drive in the Town of Caledon but the Region of Peel nixed the contract because it was about $1 million over its budget. What disturbed John Frias, FCM’s general manager, was that the project was then retendered and awarded at a price more than $100,000 higher than his price.
Contractors most often have no legal recourse when an owner chooses to cancel a contract after all tenders are reviewed, Frias said.
“Were they just feeling out the market? That’s what I felt this was.”
Was it a case of bid shopping by the Region of Peel? Mitch Zamojc, Commissioner of Public Works for the Region of Peel, doesn’t think so.
“Our intention was never to price shop. It was just so far overbudget, we had to find some other way of honing in on the project.”
As for the higher price, Zamojc pointed out it is based on different contract criteria.
He said after reassessing how to trim the price, the department chose to split the work into two contracts: an open cut job and a tunnel contract. The department’s thinking was that more contractors would bid on the open cut contract, bringing the price down.
The dual contract approach worked — partly. The original tender only received six bids; upon retendering, 16 contractors bid on the open cut section and the winning bid was a third lower than FCM’s numbers for the same portion of work.
Peel Region wasn’t so lucky with the tunnelling contract. The winning bid brought the total for both contracts to about $100,000 more than FCM’s original bid, Zamojc said.
The public works commissioner, however, thinks the retendered contracts better reflect the true value of the job.
“I don’t know this for a fact, but it felt like the jack and bore piece (in the original contract) was underbid.”
The original contract called for open cut and jack and bore work, as recommended by Earth Tech Canada Inc., the consultant retained by the Region of Peel. Upon retendering the work, Peel added tunnelling as an alternative to jacking and boring because the contracting industry recommended it as a better approach.
“The second time around the bids we got were essentially all tunnelling,” said Zamojc.
Frias has seen contracts cancelled on occasion, but usually the owner cuts out portions for budgetary purposes and then retenders the job.
“That wasn’t the case here. They just split the contract up to try and save money.”
Frias says Frank Zechner, executive director of the Ontario Sewer & Watermain Construction Association, sent a letter to David Szwarc, chief administrative officer, of the Region of Peel, concerning the incident.
While Zechner wrote that the OSWCA “didn’t draw any conclusions on the dispute” because it didn’t have first-hand information on the tender, he wrote that the association’s position is “that the retendering of construction projects should be avoided where the tender results have been competitive and the overall scope has not been altered.”
Zechner also wrote that the OSWCA encourages municipalities to support and follow the Canadian Construction Association’s guide on standard contracting and bidding procedures — CCA document number 29.
He pointed to a section in the guide which says owners should not recall bids after they have been announced because of the “considerable costs of preparing bids.”
Zamojc said Peel doesn’t treat retendering contracts such as the Coleraine Drive project lightly.
“We acknowledge the efforts and energies that contractors put into putting these prices together. These are big jobs. We’re not arbitrary about that at all.”
However, because it was about $1 million over budget, the Region had no option but to recall the tender, he added.
“I had every belief that if we had left it as a jack and bore (contract), the price would be lower, but we ended up with a tunnelling project which they tell me is a better product.”
The CCA guide also says owners should negotiate with the lowest bidder when the bid is over budget.
Zamojc said Peel Region doesn’t “routinely” negotiate with the low bidder.
“I can’t say if our purchasing bylaw doesn’t allow us to do that. If a low bidder is $1 million over budget, what is acceptable for me? Do I tell him if he’s a half million over, he can have the project? The point is, how do I establish what the acceptable limits of those negotiations are?”
Further, it is a “very discretionary area” that is unfair to other contractors who bid on the contract, he said.
Frias said municipalities should “take more care” preparing budgets before calling tenders to avoid the problems Peel faced.
Zamojc said it is possible the budget for the sewer main contract wasn’t as accurately prepared as it could have been.
“Oftentimes, what happens to us is that a budget might be put together a year or two ago on a project and as you get closer to bid time, we are aware of more information and so we refine it.
“In those cases, we go to council for more money, but we didn’t see that in this case.”
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