Caltrans is reaping some major initial cost benefits from depression style pricing in the construction industry. In a recent ENR.com article on saving over $2.4 billion, they stated the bids were coming in 20% to 40% less than the estimates. On one project the bidder actually proposed a 21% shorter time frame than estimated by Caltrans. These conditions are good for the State of California, but now they have to be careful of what they have purchased.
Contractors with lower bids than what the owner, and Caltrans specifically, has in their estimate are nothing new. Owners like Caltrans rarely have reliable estimates for their project costs. Caltrans has had problems with estimates not being close to bid amounts on more than just the projects mentioned in the articles. Their estimate problems go back years. In many cases I would consider it more luck than skill if Caltrans had the “Engineer’s Estimate” or “Fair Cost Estimate” close to the bids being submitted by contractors.
Because they have an estimate that is significantly different from the bid amounts, Caltrans needs to be wary of problems that can occur during construction. The problems can stem from contractor bids that are too low to provide the specified materials and services on the project. Because the Caltrans estimates are so far off from the bids, they should be doing an in-depth evaluation of their own estimate and the contractors bid to determine if problems exist. Without this, Caltrans does not have the ability to readily evaluate the bids for being too low in pricing or if they have the correct scope on the project.
In a pessimistic scenario Caltrans inspection oversight costs will need to increase. This can occur due to different materials being used on the project that are not the approved materials. This can occur due to lesser quality workmanship. It can happen on wages and fringes being less than specified, or in the use of sham subcontractors to circumvent the payroll requirements. In an even grimmer situation it may lead to replacing vendors, subcontractors or prime contractors that go out of business due to too low pricing. All of these and more can lead completion delays, even if the project is bonded.
Oh, By The Way… With architectural and engineering fees typically tied to the contract values, did Caltrans pay less for the design services? There may be some design firms in a world of financial hurt for the next two years.
