Bids: The Sound of Apples to Apples

Your board has done its homework, and there’s nothing left to do except approve that capital project – that roof replacement, or new boiler, or structural work on your façade. You want the best contractor you can find and at the right price. So what’s your next step?

It’s two steps, actually. Part one is preparing a bid request – a “request for proposal” (RFP) – to send to contractors. Part two is analyzing the bids and choosing a vendor. Doing the two things correctly is the basis of all successful capital projects.

“The key to a board successfully managing a bid process is to craft the RFP so that you’re getting back bids that are apples to apples,” says Matthew Providente, director of operations and compliance for Akam Associates. “If there’s no well-crafted RFP, you’ll get bids back that are all over the place.”

Then once you do get a set of good, comparable bids, have your professionals – your managing agent, architect, engineer – analyze them and prepare a spreadsheet. “Just giving the board copies of the bids doesn’t help them any,” says Providente. “We give them that, but a spreadsheet is a one-page takeaway that hopefully will give them the information they need to make a decision on a timely basis.”

In simplest terms, the general overall process involves the architect or engineer drawing specifications, the managing agent sending those specifications out to bid, and the board “selecting a prevailing bidder based on the board’s criteria,” says attorney Scott Greenspun, a partner at Braverman Greenspun. After this, you contact your attorney and have him or her “draft a construction agreement between the prevailing contractor and the co-op or condo,” he says.

Within that overview are several important steps:

1. Putting together the RFP

2. Choosing which and how many contractors or other vendors will be invited to bid

3. Meeting with candidates and doing a walk-through of your building

4. Receiving the bids, sometimes making changes and asking for updated bids

5. Choosing a vendor and negotiating the final contract

It can be tedious and time-consuming, but your professionals will do a lot of the heavy lifting – and since tens or hundreds of thousands of dollars’ difference between bids could be at stake, it’s important you keep watch over each step and pertinent detail.

Starting Up

First: going back to that apples-to-apples comparison, you’ll hear different terms for what are more or less the same thing: “bid request,” “bid package and specifications,” “request for proposal,” and so on. One engineering consultant considers an RFP “a short form, and a bid package and specifications a long form.” Conversely, says one attorney, “I consider a bid request and an RFP [to be] the same thing.” Don’t worry. Just pick one term and stick with it.

Assuming you’ve already taken all the necessary preparatory steps before proceeding with a capital project – feasibility study or engineering report, looking into whether to repair or replace – you’re ready to have your architect or engineer prepare the plans and specifications. These, together with a cover letter – alternately called the “bid sheet” or an “invitation to bid” – make up your RFP.

“The building’s architect/engineer develops clear specifications and formats a bid sheet,” says Rosemary Paparo, director of property management at Buchbinder & Warren. This bid sheet, says Providente, is “the cover letter outlining what type of project it is, who the building owner is, who the engineer and/or architect [is/are], and the bidding criteria – for example, information on how the bid is to be submitted, if there’s a mandatory walk-through of the job site, or that all contractors are required to attend an interview meeting at such-and-such [date] and time.”

“We like to see a full set of specifications detailing what the building is looking for,” says vendor Matthew Kraus, senior vice president of Skyline Windows. In the case of windows, for example, “it’s going to lay out all the details and requirements of [the] windows, from energy performance to acoustical performance to waterproofing, and it may even get into the details of the installation.”

But an important consideration that’s often missing in residential buildings’ requests, he says, is a logistics plan. How many apartments do you want done in a day? Who’s going to assist in getting into the apartments? Are there several elevators with one dedicated to the workers or a single elevator for which hours of use have yet to be determined?

“Where’s our storage and setup area – a room of some sort to have tools, materials, and equipment in place for guys to set up in the morning?” he asks. “What is the procedure [for] protecting the hallways and apartments? If someone has built-ins installed around a window, how is that dealt with? What are the building work hours and building holidays? Some observe certain holidays and some don’t. And some don’t mention it to us until the day before.”

There’s nothing that you’re legally required to include in your RFP, according to Steven D. Sladkus, a partner at the law firm Schwartz Sladkus Reich Greenberg Atlas. However, cautions Leonard H. Ritz, of counsel at the law firm of Adam Leitman Bailey, “every co-op and condo should look at its own bylaws to make sure they themselves don’t have some kind of internal requirements. There might be times where boards can’t start a certain project above a certain dollar amount without [shareholders’ or unit-owners’] approval, or there may be strictures on borrowing, for example.”

Lining Up

Your architect or engineer will almost certainly include two things in your bid-proposal package: a “schedule of values” – a line-item breakdown of each phase of the work, for which the vendor will bid a price – and a “unit-price schedule” – the cost per unit of materials.

“The unit pricing is important if more or less work must be performed,” says management executive Paparo. “For instance, a brick-replacement project may call for 2,500 square feet in the base bid specifications. The unit price holds the contractor to a particular price per square foot. If more [bricks are] needed, the contract price increases by that amount, [and] if fewer, a credit is issued based upon the same square-foot price.” The unit-price schedule also includes provisions for add-on alternates. For instance, with a roof restoration project, replacement of skylights might not be absolutely necessary but it might be something that the client wants as the project progresses.

“You have a base price and then add-alternates,” says Providente. “Let’s say you’re replacing a cooling tower. The base bid requires the cooling tower to be made of stainless steel. Now, some cooling towers are made of galvanized metal. So the engineer/architect may get an alternate price to see what the difference would be by using galvanized metal. You’ll get a base price of, say, $150,000, then an alternate of, say, $50,000.”

How many vendors should you ask to submit bids? “We do a minimum of three,” says Warren Schreiber, president of the 16-building, 200-apartment Bay Terrace Cooperative Section 1 in Queens. “If we can send out four or five, that’s great.”

Depending on the size of the project and how specialized it is, “you may only go out to three or four, or you may go out to six or seven,” Akam’s Providente says. “I’ve seen [it sent to] ten, eleven, or twelve [firms], but I think that’s a little unwieldy,” particularly when it’s time to meet with the contractors together.

Notes Schreiber: “You reach a certain point where if you send out too many bids, how do you go through them? I’ve also had instances where we’ve had difficulty having contractors submit bids. When we replaced our roofs, that was a tremendous job. We’re a garden-apartment complex with sixteen [residential] buildings and eight garage buildings. We actually had some contractors say they couldn’t bid on the job, that it was beyond them. A lot of contactors are used to working on small buildings and not on 14 acres [of buildings].”

Meeting Up

Before any bids are submitted, the board, its managing agent, and its architect/engineer will meet with the vendors at the job site. This is to show vendors the physical location and answer questions they may have. It also allows the board to go over job specifics and clarify any issues. Finally, the board can see samples of materials.

“With each contractor,” says Paparo, “we discuss, among other issues: the background and ownership of the contractor, whether any portion of the job will be subcontracted, how the job will be staffed, how the project manager and foreman will be chosen, how the contractor plans on scheduling the job, how many other jobs the contractor typically runs, and, of course, if the contractor is flexible on any prices.”

Should you meet with vendors individually or all at once? “I have mixed feelings toward having all of them together,” says Skyline’s Kraus. “I’ve seen it where competitors are attacking each other and I’ve seen it where it’s worked pretty well.” Either way, boards and their professionals should be as prepared as possible while also remaining flexible. “You might learn something from one bidder and ask it of the other people,” he says.

Outside of meetings, however, boards should never communicate with the bidders. There should be one person appointed as liaison, generally the managing agent or engineer/architect. The board should be involved, but should not be the communicator. That can lead to confusion and can cause problems.

Opening Up

Your managing agent or engineer/architect will also be the one to receive vendors’ bids. “The bids should come back in sealed envelopes and opened at the same time to ensure that if one bid comes in first, no one leaks it to a different contractor to give that contractor the opportunity to bid lower,” says Sladkus.

This is a little different from having trusted vendors you work with repeatedly, where the board feels confident that for jobs of a certain size it’s okay to award a contract without a bidding process. “There’s that old saying, ‘The cheapest is not necessarily the least expensive,’” says Schreiber. “If you’ve a contractor that you’ve a good working relationship with and maybe five jobs out of six they’ve come in as the lowest bidder, do you want to jeopardize the relationship by giving the seventh job to somebody else for a few dollars’ difference? That’s not easy to answer,” he observes. “I understand the playbook [says] that every single time, you go through the bidding process. In a perfect world, absolutely. But not everything is black and white – there are always those grays, and a good board has to be able to deal with those gray areas. That’s not to minimize the importance of having bids but it does sort of depend on the scope of the job.”

Changes

Sometimes you’ll have to request changes to all the vendors’ bids after they’ve come in. “One contractor will say, ‘You also need this; you left this out of the request,’” says Schreiber. “That can happen. Sometimes it can be a contractor who is just looking to drum up more work, but in my experience, more often these are just people who are really knowledgeable, who have been doing it 20, 30, 40 years, and sometimes you’ll reexamine the project and say, ‘That’s right, we did overlook this.’” When that happens, he says, “we ask [the vendors], ‘Could you also give us a bid on this particular item?’”

To accept a bid and choose a vendor, it generally helps to have all the particular bid items laid out clearly on a spreadsheet. “If the job involves an architect/engineer, then that professional would also prepare the spreadsheet,” says Providente, the manager. But as clear as a spreadsheet might be, a board should not analyze one without help from its professionals. “We’ll look at a major capital improvement from not just a technical aspect that the engineer/architect will mostly be attuned to, but also from a logistical aspect” of job scheduling, timing, and delivery of materials, says Providente.

It’s important to keep in mind that unlike a municipal agency, a co-op/
condo is not required to accept the lowest bidder. “The fiduciary requirement is to act in the best interests of the [property],” says Ritz. “The fiduciary duty is to pick the best-qualified contractor at the proper price,” agrees Sladkus. “If there’s a contractor who’s going to do work that costs more money but [the] board thinks that contractor has a better name in the community, the board would absolutely be in the right to select a possibly more expensive contractor.”

Signing Up

At this point, it’s time for your attorney to prepare a contract. You should ensure he or she avoids using as a model a common construction agreement created by the American Institute of Architects (AIA), since it tends to favor contractors and architects over boards.

“The building owner should not use it off the shelf,” Ritz cautions. “There are many provisions in that contract the [building] owner should not agree to.” And the industry is aware of this, says Ritz, who, as a member of the New York State Bar Association’s construction committee, has helped promulgate a proposed rider to the AIA contract to make it more owner-friendly.

You should also avoid accepting a contract provided by the vendor without having your attorney scrutinize it. “Many times we have received contracts that the contractor wanted us to sign and we’ve referred it back to our attorney,” says Schreiber. “And on more than one occasion there have been clauses in the contract that our attorney objected to, suggesting we add or change or remove something.”

After the contract is signed, keep in mind there may be cost increases because of unexpected circumstances. “If someone has to dig a hole and finds out there’s a 2,000-pound boulder three feet down, a contractor [may not be able to] hold to the original bid,” says Sladkus. In another example, says Ritz, “If the contractor says, ‘From the time I gave you the bid, the price of copper tripled and so my plumbing line item is out of whack and I’ll lose money on it.’ Then you check with your advisers and other contractors. If they say, ‘Yeah, that’s really what happened,’ you may want to entertain negotiating.”

Conversely, a board can’t enlarge the scope of a project after an agreement is reached without expecting to pay more. “Most contractors reserve the right to submit what’s called change orders for increases in scope,” Sladkus says.

Insuring

“Before finalizing your choice for the project, contact your insurance broker to review the insurance information provided from the contractors,” advises Patricia M. Batih, vice president of sales at Mackoul & Associates, an insurance broker. “Getting full copies of the contractors’ insurance is extremely important, especially for large jobs.” Sometimes, she warns, “the contract is too general and will not have all the stipulations as to the quality of the contractors’ insurance policy. [It] usually just states the required limits they must maintain. We have seen cases where contracts were signed and later the building’s insurance company reviews the contractors’ insurance [and] makes additional requirements. Or even worse, there is a claim and you find out their insurance will not respond because of an exclusion.”

If the job is large enough, you might also want to consider requiring such items as a bid bond and a performance bond, she says. The former protects the building in case the contractor backs out after his bid is accepted but before the contract is signed. The latter protects the building if the contractor walks off the job.

“Contractors who are able to provide such bonds will usually be more expensive in the long run than other contractors,” Batih says, “but you already will know that their insurance carrier has reviewed their job history and financials. If a contractor is unable to qualify for a bond [it] is a good indication that you may not want to do business with them.”

Tripping Up

Finally, don’t make the process harder than it has to be for you, your professionals, or your vendor. “One of the problems that I had some years ago with contractors actually involved a board member who just seemed to alienate them,” says Schreiber. “He would go out and nitpick [about] the jobs. It reached a point where some contractors told me they were ready to walk off the site.”

“The thing that I find most frustrating [are] board members who are everyday, average people thinking they’re experts in subject matters they don’t know anything about,” adds Kraus. Another thing that plagues projects, he says, is when the capital-project committee, like a window-replacement committee, changes because of the annual election. “If you change the committee throughout the process, it can be very harmful because now you have new people with new opinions,” he says. “If you’re going to have a committee, be dedicated to keeping that committee throughout the entire process.”

Once the bid has been accepted, the contract signed, and the work begun – you’re done with that crucially important portion of the job. You have (if you’ll pardon the pun), successfully taken care of bid-ness.