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Construction Procurement: Public vs. Private Sectors

Updated on September 20, 2017
DanDnAZ profile image

Registered Architect, 40 years experience, Staff Architect for State Agency overseeing public school construction.

After spending some 33½ years in private practice as part of the private sector, I moved to the public sector. For the last six and half years, I have served as the staff Architect to a public agency. Culture shock?!?! YES!

In my private practice, many of my clients often expected me to be the source of solutions. It did not matter if they were experienced or not in the construction / real estate game. If an issue arose on the project, the expectation was that I had the expertise to provide options and opinions for resolution of any issue encountered. This was especially true for the less experienced clients who often sought guidance during the decision-making process.

As a result, I grew a rolodex that would provide resources on almost any facet of the industry. I never knew what might be needed, so knowledge became a quest. An obsession. As I grew in knowledge, I realized one thing. No matter what I knew, someone always knew more than me. I will not ever know “everything”; whatever “everything” meant. Harnessing others’ knowledge was the key to success, not only professionally, but in life generally speaking.

Project success was my focus. Always. If I did not have the answer, I knew some who did. When I contacted the client about a project issue, I already had one or more options to present as well. To me there was never a “problem”. Only situations. I saw “no”, in any form, as an obstacle, never an answer. I am much the same still today.

Differences in Procurement Methods

One of the greatest cultural changes in my private / public sector switch was procurement. The past normal client expectation of “take care of it”, was not allowed in the public sector. Everything had to be procured. What did that mean? In my past, most projects always took too much time in the client’s eyes. It was never fast enough. In the public sector, that enemy of time now became a problemed companion for my projects.

As Benjamin Franklin once said, time is money, and costs went up for my public-sector projects. Most of the projects I worked on had two or three distinctive stages. Each stage had to come before our Agency’s Board before the next stage could be embarked on. With only monthly meetings that added two or three months to every project, just for approvals. Forget work time required for the project.

The tension of opposing views or goals is woven into the foundation of our great nation. Civil discourse in its supposed norm and nature. Expression of one’s individual views is supposed to be both encouraged and respected, no matter the discussion topic.

As I discovered, tension even existed in the area of procurement for the public sector. Some view that the paramount issue is the greatest number of competitors when spending these public funds. Others believe that lowest costs should dictate. Which is “right”? Is there such a thing as one being “right” while the other is not? I discovered that both views had value.

I know as I started in my career, that all the Architects I worked with and for, had consultants. This told me that no one knew “everything”. An epiphany to me early in my career. I was never going to know “everything”. Whatever that “everything” was or meant. This taught me that my profession recognized this fact as well.

I found that guiding my consultants was the path to efficient and significant solutions, not dictating my limited informed beliefs to them. After all, they were MY chosen experts. Otherwise, I had no need for them on the project team.

The great Frank Lloyd Wright once said that he saw engineering as rudimentary, undeveloped architecture; a reflection of a belief that engineering was a sub-practice of architecture; not necessarily another professional practice. This is a belief that I hold professionally as well. After all, the only person that needs consultants is the one that does not know “everything”, a classification I place myself in.

The Need for Experts

Recently, I had the chance to meet and talk to a researcher from Arizona State University, Dr. Dean Kashiwagi. We call him Dr. Dean. In another paper, I introduce what I called “Basic Business Principles”. It is the concept that a person cannot have everything. Economics always limits a person’s choice to only two of three factors in product / service purchasing. They are: good, cheap, fast. The owner must make the choice of which two will be prioritized at the cost of the third.

Dr. Dean’s research reflects that the optimal delivery of a construction project, start to finish, comes when the owner hires “experts”, then stands back, and let the experts do their job. Remarkably similar to what I discovered decades ago in my own career. Guide my consultants, let them do what they do best. If they do not perform well, find another that has more expertise. Dr. Dean’s research supported what I knew. That sometimes means I need to reign the client in, or get the client out of the road to allow the experts to do their jobs.

Using Experts

How can this be accomplished when the public-sector focus is on the lowest bid? Well it can, and while I am no expert on public procurement, I have learned some things in the last six and a half years. To begin, we can look at the processes of “substitutions” and “prior approvals”. I wrote a little about this in a prior paper. Both processes are used when a product or material, other than what was specified, is desired to be used on a construction project. The difference between the processes is when the proposed change is presented. If it is during the bidding process, it is a “prior approval” and gives all bidders a chance to use that product or material when bidding. After the construction vendor is selected, it is called a “substitution”. The specifications should cover all conditions for both processes, and those details are not in the scope of this discussion.

In the private sector, product / material section is much easier, because a client has no obligation to afford broad competition. In the public sector, that is not allowed. Limiting options without strong justification, may even be illegal. To insure wider competition, the specifier can take two different approaches to “substitutions” and “prior approvals”.

Approach one, write a performance specification. Select the attributes that are most important to the performance of the product or material, and state them in the specification without noting a supplying entity. This now forces all bidders to submit selected products and materials before bidding. Failure to submit could be used to disqualify a vendor’s response. This will cause more work for the specifier during bidding, but may eliminate most complaints concerning restrictive competition. It is up to each bidding vendor to submit or select something submitted by a competing bidder.

Approach two, write a specification around a specific material or product, and cite multiple manufacturers / applicators that would have an acceptable material or process. To help with the competitive concerns, there should be multiple competitive sources. A manufacturer that offers a uniform sole source price for materials, must have applicators that can set their own labor prices that create a competitive market. A manufacturer that offers only a small section of approved applicators and sets total costs charged by those applicators would not qualify as a competitive market condition.

With both approaches, it requires the specifier’s use of judgment to determine equivalency to the specification. This becomes important, as this specifier is most likely required to be a Registrant (Architect or Engineer) and that practice is regulated by a regulating Board or Agency. That authority will probably use a standard of judgment. That standard would be something along the lines of execution of judgement constitutes practice of the profession and requires professional Registration. This is where owners and procurement specialists can create project deficiencies by intervening with the experts (Registrant).

The specification represents a professional document produced by the Registrant / expert, and that Registrant is legally responsible for the project. These guidelines were set back in the aftermath of the Hyatt Regency collapse in 1981. I have an in-depth, five-part review of that case in another paper. In short, the Registrant of Record is the legally responsible party in making these decisions alone, and owner intervention may bring about undesirable results. If as the owner you have distrust for the Registrant, then find another expert that you do have that trust in.

I have been informed by some manufacturer representatives and non-Registrants that the specifications for a project were “wrong”. My usual response is along that lines of “Well that is your opinion, and when you grow up and get your Registration your opinion may have some weight, until then, my Registrant’s opinion will take precedent as that is the Registrant of Record for this project and that is the person that is assuming responsibility and liability for this project.” Now before you say something about that response, let me point out that I took years of training and testing to become an Architect. I am certain that few professions have more rigorous testing for licensing, and in Arizona the Architect / Engineer has unlimited liability. There is no statute of limitation on when we can be sued for a design defect. In other words, my children, grandchildren, and great-grandchildren could be held accountable through my estate. So yes, I am very protective of my profession on this count.

Red and Blue Oceans

While completing my MBA, a couple of my classes discussed and studied red and blue oceans. This was an analogy for established (red) and new (blue) markets. While those discussions centered on the creation of new markets by creating new products, I also came to understand it when introducing an unknown existing market into an already established environment. This would be especially true in the public sector. The public sector is not the best nurturing environment for trying something new and out of the ordinary. It is more in one’s self interest for longevity to stay with tried and true methods as a public worker.

This was most noticeable as our Agency’s Board was very fixed on the design/bid/ build delivery model. This has become more and more ineffective, as frequently the lowest bidder will bid the gaps in the plans and specifications, opening the door to change orders down the road to enhance the project’s bottom line to the vendor. This comes at the cost of the taxpayer.

This situation is now opening the door for the public sector to use “alternative” delivery methods, which are decades old, and practiced widely throughout the private sector. Of course, this almost nullifies the term “alternate” as they are now more mainstream. CMAR, JOC, and design-build are some of these project delivery methods. Each method has a best use with respect to projects and project types. Not every system is appropriate for every project, and an expert will be the best to guide in making those decisions.

Closing Thoughts

While procurement of public funds has to ensure the best competitive market for the public entity, each public entity must determine what are its priorities for such determinations. The public entity must always remember that it does not inherently and internally own that expertise itself, as demonstrated by its use of outside experts. Micromanaging these experts will most likely lead to project deficiencies in some form or another. Even if the public entity possesses people that might be well versed and experienced in the knowledge area being use, the use of outside experts reflects a tacit acknowledgement that the public entity is not will to expose itself to certain liabilities from internal execution of such expertise. Especially with that determination it is imperative that the public does not artificially raise liabilities on consultants, or it may find it hard to get consultants for its required work.

© 2017 Dan Demland

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