Those people were using the biggest dry ice making machine in the world to try to pour not too shitty a concrete on schedule, next to a blasting zone, under a leaking gate (yeah, the gate is leaking it just stopped leaking because the water is lower than the gate now), under high voltage power lines, without anyone getting hurt.
It seems unlikely that bad faith is the primary cause. Yes, there are really contractors and owners who do act in bad faith, like the Trump organization, but these are unusual, and highly publicized. Punishing dishonesty seems like the easiest problem to solve, and it's easy to rally around for a quick and cheap victory. But I have seen these run-up bids for decades and no amount of punishment has ever seen to stem the flow of these events; it seems as if every city and state is infected with this problem. Either we are in a system where bad apples are so numerous that punishing a few has no meaningful effect on incentives; or we are in a system where bad apples are so rare that we punish good apples mistakenly, and can't figure out the real cause for our poor planning. Until we move on from the assumption that a few bad apples are to blame, we likely won't be able to discover the real underlying problem.
So, the consensus seems to be Governments would rather get low bids that don't price in unknowns. If unknowns happen, they can dicker over the increase. But if you award a contract that's too fat, it's difficult to claw back.
If the work goes exactly to plan, the contract will come in on budget. But if problems occur, the price usually goes up. Our current system seems to be optimized for lower overall project cost at completion, with the side effect of making it less useful as a budgeting tool.
They don't really want integrity, they want to get a number that won't get them yelled at by their boss. The integrity bit is a pass the buck clause.
So the estimator is in the position of trying as hard as they can to lower the estimate. "Well, if we assume xyz unreasonable assumption, then we can lower the amount by this amount."
And then there are "risk" shenanigans. You itemize all the risk items, declare an arbitrary probability of happening. Then management rolls those up, and declares that they are not going to fully fund the risk and instead "carry" it forward.
Fully funding basically would mean multiplying the likelihood of occurring by the cost, and adding all the items up. Which is already iffy as the probabilities aren't based on much except a w.a.g.
So you win the bid, the risks are realized, and weren't funded. blow out.
Standard practice. And because everyone does it, the honest bidder is the loser. Losers go out of business. So the whole bidding practice is self selecting for cheats.
If you say, "this is unethical, I'm going to do my best to give a realistic bid", you lose.
Austin government did this for its MoPac toll express lanes and got them for way cheaper than what they should have paid: https://www.bizjournals.com/austin/news/2017/09/27/big-settl...
However, the project ran over for two years longer than it should have (it was supposed to be completed in September 2015, and they are only just now wrapping it up). So I guess no one really won there aside from the Austin transportation budget guys, except the populace hates them now for traffic jamming the place up for two years longer than they said they would.
Let alone that we basically award this work one estimated number and the ability to get through a paper work hurdle.
If you start making those rules complex it becomes hard to compare bids to each other, since your bids are likely to become non-transitive based on the scenarios.
Cost plus is the normal way this is side stepped, but unless you have a system that is mostly ethical actors that can break down. And if you have all ethical actors pretty much any system will work...
Why not just have major contractors required to post a bond when they place a bid, and if they have cost overruns they pull those from the bond (ie, their own money)?
Case in point: SpaceX challenging the launch industry's cost-plus culture with publicly-posted fixed prices [1].
Case in point #0: the Space Shuttle (STS).
[1] https://www.nasa.gov/pdf/382045main_19%20-%2020090730.11.STS...
Cost plus percentage gives a very clear incentive to raise costs
And had the competing team won, the Challenger disaster never would have happened, because the solid-rocket boosters would have been manufactured as units and transported to the Cape by barge rather than having to be broken into small enough components to fit on rail cars.
I am not sure if you can implement a system that would work well when your actors are profit driven work that needs to be done can only be done exclusively by one entity at a time, and as a bonus that extra profit gives you more feedback into how the system operates. There aren't a lot of natural negative feedback to keep things under control in that system.
Especially if your goals are to reduce overhead.
I'm criticizing a system that incentives optimistic initial bids that are later revised up. A bad system doesn't need bad actors to produce bad outcomes. A $275 million bid ballooning to $500 million without any competitive pressure is a bad outcome.
American infrastructure costs are higher than production factors, e.g. land, material and labour cost differentials, explain [1]. Our auction mechanics are called out by experts as a big part of the problem.
[1] http://marroninstitute.nyu.edu/content/blog/is-u.s.-infrastr...
If you want separate bidding for separate phases, bid it out that way.
If you now introduce scenarios where projects can have an unknown number of bidding processes all costs will go up to cover the work necessary for multiple companies to prepare bids.
It would just make things much much worse.
Our bid was 1/3rd of the "winning" bid.
The distrust of government and corporations in our society is one of the biggest problems facing us as we go forward in the 21st century. We need to figure out how to restore trust.
The fix is not clear. Can't just drop in agile, every attempt to legislate away corruption fails.
Isn't this why most publicly financed projects have massive cost overruns? Bidding realistically will lose you the contract; bidding low and then running overbudget may have consequences, but they are not as severe as not getting the contract in the first place.
I guess what I'm actually asking is, which country is that promised land? (I have a few candidates in mind myself, but I consider them to be the exception rather than the norm and I don't even know if they are truly as good as I suspect)
Note: I'm not saying the $225 million is unfair. This is a complicated project with lots of unknowns. But refusing to test 9-figure quote adjustments is bizarre.
There is work that is 100% documented in the proposal and in those cases it’s reasonable to hold the winning bidder’s feet to the fire, but this isn’t one of those.
In the absence of time pressure they could have let a contract to fully specify the work, then one to do it. But if they’d done that there might not have been a dam by the time work started.
I agree that in this specific case, had the contractor come back and said "it will be $1 billion more," it would have been worth paying to avoid the destruction of the Central Valley.
The broader discussion is that this is avoidable. Two models abound in the private sector. For less time-sensitive situations, one has changeover processes [1]. For time-sensitive work, companies avoid like death being totally dependent on a single company.
The latter would require large changes in the way contracting is done in America. But it's not like nobody else in the world faces time-sensitive repairs. The defensiveness we, as Americans, have towards our system which shows clear and apparent pricing flaws is surprising.
In commercial projects, this often triggers an arbitration about the overrun. You get experts to challenge the fairness of the price, hopefully using market data. And, of course, there are the courts. In worst case, the buyer can cancel and/or rebid. Not 'competitive,' but adversarial.
http://www.wnyc.org/story/316201-brief-history-64-billion-ba...
As you say, better to wait till its done before getting too excited.
Even as an ethical actor you can only price what is specified. However, you can then use your knowledge about likely the real variances that will be needed and risk profile to place a bid that takes this into account to remove margin or discount the bid price.
When the price change is announced, anyone from the original pool has [30] days to match. First to match immediately wins the work from the existing contractor. Loser pays to move their equipment out; winner should have included that cost when they agreed to match.
This system works for two reasons. First, the first bidder will be cautious about requesting increases if it means risking losing the work. Second, the change-over cost, borne by both the outgoing loser and incoming winner, imposes just enough friction to grant the first winner an incumbency bias. This bias helps keep bidding in the original auction competitive.
It also seems like you are only trying to address the problem of people introducing needless variances as a way increasing profit.
Which is not the case being discussed here and I don't think it is major reason for cost overruns. They haven't requested an increase, they have found out that to satisfy the engineering requirements of the project that more work has to be done.
It's commonly called out as one of the driving reasons behind the horrible economics of American civil engineering [1].
> They haven't requested an increase, they have found out that to satisfy the engineering requirements of the project that more work has to be done
It's both. The change may be merited. If so, it should win--again--in a temporary re-auction. But refusing to market test an 82% cost increase is game theoretically begging to get screwed on pricing. Given American taxpayers get screwed on pricing for public-sector civil engineering (after accounting for land, labour and materials cost differences), I think it's a fair discussion to have.
[1] http://marroninstitute.nyu.edu/content/blog/is-u.s.-infrastr...
I just don't think your incentives would produce better outcomes, from my perspective it would make things worse.
The problems anyone campaigning for auction reform runs into are three-fold. One, it's a boring problem with boring solutions. Two, there are vested interests. And three, Americans suffer from a just-world bias when it comes to infrastructure [1]. The latter is apparent even in this thread. It's difficult to find solutions when people vigorously defend a clearly-flawed system.
I can see how the recommendation you mooted would improve incentives in some procurement domains. Large civil works isn't one of them however.
You really believe the main issue is "getting the old equipment out" and "the new equipment in"?
Your plan sounds like an amazing way to create a tremendous amount of safety risk, shoddy work, or a project that runs forever.
No, I was responding to a specific complaint made upthread.
> Your plan sounds like an amazing way to create a tremendous amount of safety risk, shoddy work, or a project that runs forever
Do you have any basis for this? The change-over requirement for midstream cost adjustments (above a threshold) works well enough for e.g. aerospace subcontractors. It adds delays in the short-term but promotes better behavior in the long.
A delay in this project is a safety risk. They are trying to have a working spillway by Nov 1, so if unexpected rains cause another extreme inrush into the lake they can handle it by releasing >100,000 cfs from the spillway. Without that ability, they are risking failure of the emergency spillway and the flooding[1][2] of a large part of the central valley.
For this type of work, the best process would avoid appointing a single contractor. Unfortunately, that would also require more expertise in the public officials allocating work, a concentration we find politically toxic in America.
Out of curiosity, what was the runner-up bid? Is there no mechanism to re-open bidding when the circumstances change? What prevents me from bidding $1 and then busting it to $1 billion after winning?