One of the highlights of the American Water Works Association’s 2006 National Conference held in San Antonio this past June was a session titled “Is Low Price the Way to High Quality?” The panel comprised representatives from a cross-section of the water industry, including a regulator, owner, engineer, contractor, manufacturer and a rep. The discussion centered on the on-going challenge of attaining the best quality products for the water industry, while fostering maximum competition in a public procurement environment.
Paul Spofford of Infilco Degremont opened up the session by recalling the time when Alan Shepherd, the first man in space, remarked that “It’s a very sobering feeling to be up in space and realize that one’s mission success and safety was determined by the lowest bidder on a government contract!”
WWEMA authored a publication on this subject, in cooperation with the Association of Metropolitan Sewerage Agencies (now known as the National Association of Clean Water Agencies), titled “Optimizing Public Agency Purchasing Power.” This handy document places heavy emphasis on procuring value, defined as “. . . more than just the lowest purchase price. It is the lowest total cost of ownership, which includes operating costs, cost of procurement, reliability and after-purchase support.”
The document goes on to state that “to ensure wise investment, the assumption that the lowest price automatically equals the best deal must be challenged. All sides of the procurement equation agree. The process should be more value-focused than price-conscious.”
Copies of the document can be downloaded for free from our website at www.wwema.org.
It was encouraging to hear the speakers at the AWWA conference give equal credence to the importance of value-based procurement practices. Interestingly, both the engineer and the manufacturer represented on the panel cited the same quote in their presentations from John Ruskin (1819-1900), which reads:
“It’s unwise to pay too much, but it’s worse to pay too little.
When you pay too much, you lose a little money - that is all.
When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.
The common law of business balance prohibits paying a little and getting a lot - it can’t be done.
If you deal with the lowest bidder, it’s well to add something for the risk you run.
And if you do that, you will have enough to pay for something better.”
It’s hard to argue against this statement. But as the saying goes, “The devil is in the details!” The panelists offered interesting views on various procurement methods that can be employed to achieve the best results.
From the engineer’s perspective, Pat Hogan of Malcolm Pirnie finds that the use of base bid and base/substitute bids offers greater advantages to the owner over the conventional bid format.
“Clarity and completeness with regard to the specifications is also a crucial component to a project’s success,” Hogan stated.
“Or equal specifications is the biggest nemesis in our industry,” exclaimed Barry Shearin of Charlotte-Mecklenburg Utilities, offering the owner’s perspective on the panel. He stated that only when operation and maintenance costs are minimal and reliability is not mission critical that purchase price should rule.
“Of greater concern are the costs for technical support and operator buy-in, which are difficult to quantify on bid day,” noted Shearin.
Jed Holt of Bowen Engineering Corporation expressed his support of the base bid format in his presentation on the contractor’s view of managing risk. Interestingly, he began his remarks citing a quote from Harvard OPM that “The quality producer will replace the low price producer in the 21st Century.”
Tim Lubeck of Caterpillar, speaking on behalf of the manufacturers, spoke fervently about the use of life-cycle costing, which is a form of value analysis that establishes the best value over the life cycle of a product. He affirmed that life-cycle costing is still taking the competitive low bid, “it just makes the vendors compete on more than just initial purchase price,” he added.
Ron Culp of Hartwell Environmental Corporation gave a primer on the manufacturer representative’s role on bid day, to include coordinating the scope of supply with the general contractor, working with the challenges presented by terms and conditions, and providing the best price for each item.
“The most important function of the sales representative on bid day,” Culp wittily concluded, “was to sell something!”
What was anticipated to be the ‘show stopper’ on any discussion of value-based procurement was the presentation by Bobby Blowe from the North Carolina Department of Environment and Natural Resources. North Carolina is known for its general statute that requires naming three brands of equipment in an ‘or equal’ specification. He explained that his provision came into effect due to some unrelated lighting manufacturer incident in his state, and surprisingly noted that there are creative ways to work around this requirement to get the best product for the job.
That was reassuring to the panelists and the members in the audience who engaged in a productive question-and-answer period following the formal presentations. The three-hour session seemed to fly by as industry representatives spoke of their frustrations in not being able to procure quality products most suited for their needs. All the presenters agreed that the industry needs to do a better job in educating others on this important subject. AWWA is to be commended for taking a step in this direction.
About the author:
Dawn Kristof is president of the Water and Wastewater Equipment Manufacturers Association. WWEMA has operated for 98 years as a Washington, D.C.-based, non-profit trade organization representing the interests of companies that serve the water and wastewater industry.
