Historically, cities and counties have awarded construction contracts for public works projects to the lowest responsible bidder. The successful contractor typically prepares its bid based on a complete set of plans and specifications that precisely defines the facilities to be built.

This time-honored procedure has long been considered the best way to prevent favoritism, collusion and other problems. While by no means a perfect system, until fairly recently it was deemed to be the best way to assure taxpayers that their money was being spent wisely.

In recent years, however, more and more localities have grown frustrated with this traditional approach to procurement. Some have found that completed projects were not fully responsive to their needs, while others found that their new facilities were difficult to operate and expensive to maintain. Some local agencies have had trouble controlling the escalating costs of public works projects, including change orders and claims, at a time when jurisdictions are trying to stabilize or reduce taxes.

To combat the problems inherent with traditional low-bid procurement, many states are following the example of the federal government by enacting procurement options to allow - and encourage - alternative methods. Such options are now thought to be more cost-effective in many cases, as well as more conducive to creative problem-solving.

In recent months, two states took steps to increase procurement flexibility by deciding to allow local agencies to award contracts for reasons other than low price (in the case of the Rhode Island Supreme Court); and enacting legislation to expand use of an alternative method of procurement (construction manager/general contractor) originally restricted to the building of prisons (state of Washington).

With the selection determined solely on price, the owner has little ability to balance quality and cost factors, including ease of operation, in making a decision. With an alternative technique such as competitive negotiation, owners can make decisions based on qualifications, technical approach and price. Using performance-based contracting, they can set the standards that the constructed facility must meet and allow the contractor and its team members to develop the method of achieving those standards.

Seeking the best value Seattle's award of a $101 million contract for the design-build-operation (DBO) of the city's first water treatment plant (Tolt River) was structured around performance standards that the DBO team must meet throughout the life of the contract. Construction cost was only one element of the decision-making process; in addition, the lifecycle cost of the facility, including the cost of operations for up to 25 years, was considered key. Seattle Mayor Norm Rice predicts that ratepayers will save $70 million over the life of the contract thanks to this alternative procurement process.

Although the Tolt River project is the first municipal water treatment plant of its size in the U.S. to be procured and delivered in this way, it represents another example of the trend toward competitive negotiation/best value and away from selection based solely on low construction cost.

The Federal Acquisitions Reform Act of 1995 permits a two-phase process whereby a limited group of proposers is selected based onqualifications and their general approach to a project, then detailed proposals from these shortlisted proposers are considered according to "best value," not just lowest price. Best value calls for ranking proposals based on a weighted average of scores on all criteria stated in a solicitation. The agency may award the contract after this evaluation, or it may discuss proposals with those considered in the competitive range and then permit all shortlisted proposers to submit best and final offers.

Best value has been called "a policy or philosophy but not a procedure" by Adjunct Professor Vernon Edwards of George Washington University's Government Contracts Program. Another expert, Ralph Nash, founder of the GWU program, describes best value procurement as "an art rather than a science."

Despite the difficulty of making a best value decision compared with the ease of selecting the lowest bid, both these experts acknowledge that best value allows government agencies to fully assess their options and select the firm proposing the best alternative. But best value procurement is only one option.

The Office of Federal Procurement Policy has advocated performance-based contracting, under which contracts define the required performance standards of the project but do not dictate how the contractor should do the work. Ida Ustad, deputy associate administrator for acquisition policy at the General Services Administration (GSA), notes that performance-based contracting results in lower costs, better service and shorter delivery times.

Imperial, Calif., took advantage of performance-based contracting when it needed to quickly double the capacity of its water and wastewater facilities to meet projected population growth and to comply with environmental regulations. A design-build team won the project with an unsolicited proposal that included $15 million in certificates of participation from an investment banking firm. The city did not begin payment until the upgraded facilities had been successfully on-line for six months.

Increasing flexibility The design-build project delivery process can be procured with competitive negotiation, performance-based standards and best value selection criteria. Compared to the traditional method, design-build generally can offer shorter schedules, less litigation and lower costs because designers and contractors work together as one contractual entity, are held jointly responsible for deficiencies and delays and are able to eliminate the often adversarial relationship that exists between the two functions in a project constructed under traditional methods.

With the traditional method, an architect/engineer is hired and completes the design, then the procurement and construction are competitively bid and awarded based on the lowest bid. Because these steps are sequential, the entire process takes more time than design-build, which allows the procurement of equipment or phases of construction to begin before the entire design is complete. Costs are reduced not only because schedules are shorter, but also because certain precautions and redundancies, taken when a designer has to assume that a low-bid contractor will build the facility, become unnecessary when the designer and contractor collaborate on a project.

Consequently, design-build contracting can add flexibility to the process. The Utah Department of Transportation, for example, added a maintenance requirement to its design-build procurement for the reconstruction of a 17-mile section of Interstate 15 because ensuring quality was the biggest concern of state representatives. As a result, the procurement process and final contract included specific provisions relating to quality with more of a carrot, as opposed to a stick, approach in the relationship with the design-build-maintain team.

While use of alternative procurement methods varies between, and even within, states, the trend is clearly toward increasing flexibility. Kenneth Roberts and Nancy Smith, authors of "Design-Build Contracts Under State and Local Procurement Laws" inthe Public Contract Law Journal (Summer '96), provided a state-by-state analysis of procurement laws relating to design-build and estimated that two-thirds of the states permit the approach in some form.

Still, they noted, only a handful allow all their agencies to use it. To date, most legislation enabling design-build is specific to the agency requesting the authority or has been enacted to authorize a particular project, according to Roberts and Smith.

In Florida, the Consultants Competitive Negotiation Act permits design-build contracts but requires local government units to develop their own procurement rules. Keith Rice, manager of the Orlando Utilities Commission, has taken advantage of this law by using competitive, negotiated bidding on design-build projects for the past five years. Rice shortlists a minimum of three D-B teams based strictly on their qualifications, then negotiates a guaranteed maximum price or lump sum (depending on the project) with the highest rated team.

"We're all looking for the best value, not the lowest cost," he says. "I can ask for bids from the top three teams, but I don't like to do that because then the low bidder must be awarded the project. The low bidder may not be the best team and might be low with the bid just to get the project and hit you with change orders later.

"Negotiating the price may be difficult, but the people operating our plants 10 years from now are the ones who will really see the benefits of a quality project - the rest of us who design and build the plant go away," Rice says.

To help him negotiate, decide what costs are reasonable and explain these costs to his executives, Rice always retains an independent consulting engineer who also helps prepare contracts.

The Memphis way Because procurement laws vary so much, agencies are using a broad range of procurement techniques. Among the advantages of traditional contracting methods is that a low bid is simple and unassailably objective; it is difficult to contest a decision based on choosing the lowest number.

However, proponents of more flexible procedures often argue that not only does the lowest bid not ensure quality, but it sometimes does not even result in the least expensive solution.

Tennessee requires competitive bidding, but Jerry Collins, the environmental engineering administrator for Memphis, Tenn., has devised a bid sheet that provides an incentive for creative thinking by design-build proposers. Proposals must include a base price for the project, prices for several alternate solutions described in the RFP as well as prices on alternate solutions the proposer comes up with.