Project Management Best Practices for Engineering and Construction: Part 1-The Bid Process

If you work in the engineering and construction industries, there’s a good chance you’ll be called upon to manage projects requiring significant coordination of ideas, materials, and labor. This and subsequent articles in this series will provide you with project management tips and recommendations based on the authors’ combined 70 years of experience in project engineering and management of power plants and other industrial facilities.

These recommendations are applicable to both large and small engineering and construction projects, and to new and retrofit work. This first article will focus on the bid process, specifically qualifying and selecting bidders.

Other articles in this four-part series will cover contract execution (Part 2), construction management (Part 3) and software project management issues (Part 4).

A Focus on Details

It’s been said, “the devil is in the details.” However, project success often depends on those very details. If the project manager lacks relevant experience or cannot focus on details, he or she is much less likely to sidestep avoidable problems and is also less likely to instruct others involved in the effort as to the value of quality workmanship and the need to get the details right.

The world is littered with projects that failed due to inadequate planning or attention to details. At the same time, many examples exist of projects that still provide utility, jobs and revenue decades beyond their projected design life. For a project to have a chance at long-term success, it must meet a current need while being energy efficient, cost-effective, safely operable and maintainable. Additionally, the project must meet all relevant federal, state, and local laws, codes, and ordinances.

Major construction ventures require detailed bid processes. Source: Georgia Power

If a project in the design and development phase appears to meet the above criteria and is able to secure at least some of the required financial backing, then it’s time for plans and documents to be prepared for bid requests. These requests can encompass any number of services and equipment, with the number varying greatly from one job to the next, and from one method of project execution to the next.

For example, the owner’s project team may decide to use a single company to engineer, procure and construct the entire project on a turnkey basis. This will generally result in the highest total bid cost, but it has the advantage of requiring less internal effort from the project owner. It also transfers some of the owner’s risk to the engineering, procurement, and construction (EPC) contractor.

To reduce cost, the owner’s project team may decide to break the project down into many different areas, requiring bids from multiple companies. This likely will save money, but it also will increase the owner’s risk and required project management and design efforts.

This article focuses on the bid process for the major contractors, which will include a single contractor for a turnkey EPC project.

Project Manager’s Role

Whether a project is executed turnkey or not, a project manager will be needed at an early stage to schedule, track and foster the development process. If the project organization is small, the project manager may be a force of one with a large number of tasks to schedule and manage. If the organization is large there likely will be technical, legal, environmental, finance, procurement, safety and other resources to assist in the process. A wise organization will give the project manager sufficient scope and authority to manage the process. Otherwise, managing other entities in the organization can delay a project and distract focus from crucial details.

Developing a list of qualified companies to bid on the project is vital. It’s important to throw a wide net to get a reasonably large number of companies as potential bidders, with 4-8 companies on the final bid list typical for all but specialty items, which may have only 1-2 qualified bidders.

For turnkey projects, the EPC contractor must be right-sized for the project, and it needs to have risk tolerance levels similar to the owner. Selecting only big-name companies may not always be a wise move, as these large companies are generally accustomed to constructing massive projects and may not be competitive or efficient for smaller jobs. By focusing on the other end of the size range, you may find lower costs but possibly an excessive amount of risk as smaller companies sometimes overextend themselves when taking on projects much larger, more complex or just different than their typical project.

In the competitive bid process, bidders will need accurate and complete bid documents to generate the material take-off list which forms the basis of their final price. The owner/developer’s main opportunity for getting a good value on a project is to capitalize on the fact that the successful bidder is required to bid sufficiently low to win the bid process. The more complete and accurate the bid documents, the higher the confidence the bidders will have in their cost estimates. This can lower the contingency costs that bidders add to their bid price, and will also likely lower the number of change orders.

Bid Document Details

The bid documents need to specify in detail exactly what equipment is required or acceptable, performance requirements, schedule requirements, completion dates and all other details important to the owner. The following are typical bid document items:

• Project description, location, and bid due date
• Type of EPC contract –turnkey, unit price, target price, time and material, etc.
• Project schedule or a list of all major project milestones
• Scope of work
• Major equipment list
• Performance guarantees, including performance bonus/penalty or liquidated damages
• Site drawings, including major equipment locations, site boundaries, access routes, utility interconnect locations, etc.
• Construction laydown, fabrication, staging, crane and parking locations
• Process flow diagrams
• Main process and instrument diagrams
• Civil, electrical, mechanical and controls specifications with lists of relevant codes
• The geotechnical initial evaluation report
• Major equipment preliminary loads for preliminary foundation designs
• Request for copy of bidder’s QA/QC manual
• Request for contractor’s current accident incident rate report
• Request for copy of bidder’s safety manual
• A requirement for submittal of contractor’s performance or completion bond rate
• Request for contractor’s builder’s all-risk insurance rate
• Errors and omissions insurance for any design work (if a contract is not EPC)
• Requirements for contractor’s progress reporting frequency and level detail
• Proposed payment schedule
• Owner’s preliminary draft of the proposed contract
• Bid evaluation basis listing bid criteria
• A statement requiring bidders to specifically list all exceptions and exclusions in the bid
• A statement requiring all bidder proposed alternates be identified as such with clear pricing breakouts
• The statement requiring bidder’s confidentiality of owner’s bid document information.

When compiling a bid list, it’s important to research what companies have constructed similar projects. Trade journals and consulting engineers may also be useful sources of information. For any company bidding on significant work, one must take the time to find, call and talk with previous customers.

Financial Strength

One of the biggest concerns is a company going bankrupt, or otherwise experiencing financial trouble while working on your project. Do your homework and check the financial condition of companies on your bid list using sources such as Standard & Poor’s, Moody’s, Fitch Ratings, Dun & Bradstreet and the Better Business Bureau.

Good project decisions are based on an understanding of the principles involved and a thorough evaluation of the opportunity. Great decisions require the same understanding combined with intuition, which is the technical realm requires the ability to keep the successful final result in mind prior to the start of physical work. This intuition is rare and of great value, and it seldom comes without experience. The ability to translate this intuitive vision into a complete bid package and identify competent companies it is a vital step in any project.

Coming in Part 2: Contract execution including selecting contractors, negotiating and awarding contracts.

Dan Hebert, PE and Kevin Fullerton, PE

Author:

Dan Hebert, PE, and Kevin Fullerton, PE (Originally published by IHS)