When economists talk about aggregate demand, they are talking about the combined contributions of both government and the private sector, both of which can issue Requests for Proposals to provide services or complete projects.
RFPs are issued to prospective suppliers or contractors early in the procurement process. They are designed to provide structure to the decision-making process, provide project specifications, weed out unqualified bidders, and identify a project budget.
A government RFP can be issued for a variety of services. Larger municipalities use them for building projects, street improvements, utility upgrades, or in the case of a county government, to run correctional services. If they don’t have a large staff, smaller units of government might use RFPs to farm out building inspection, financial, and civil engineering services.
The common denominator for any fee- and credentials-based selection is that they have to be qualified to do the kind of project under consideration. “What we would focus on is targeting the kinds of building, or the kinds of service that best fit what we want to do,” said Dan Davis, senior vice president of CG Schmidt, a Wisconsin construction firm. “Some companies are geared toward certain kinds of infrastructure work, such as wastewater treatment plans.”
In this look into the RFP process, we talked to local executives who are familiar with the process involving government and publicly traded company RFPs.
Building bids
Davis can speak of the process from a construction industry standpoint because more than 90% of his company’s work is secured through the RFP process. Among the Milwaukee-based company’s recent projects was the new Union South on the UW-Madison campus.
In bidding for government jobs, would-be contractors must understand that while there are commonalities, different governmental units do things differently. “We refer to it as a fee-and-credential-based selection,” Davis noted. “When we look at it with different communities or different entities that use this, there are a number of RFP formats.”
Local public school districts, he said, often will hire an architect to write the RFPs for private-sector construction managers to respond to, and to otherwise dictate the process.
Municipal governments typically interpret state law as requiring a lump-sum contract, so cities and generally counties solicit bids for construction work. At times, county governments will hire a construction manager as an agent, where the construction manager does not actually hold any of the contracts with subcontractors.
“They are really just a consultant, and then they bid portions of the work,” Davis explained. “They bid an architect to write all the specs right down to the last nut and bolt, they get a lump-sum contract, and then they go out and hire the low bidder that’s qualified and they battle it out. Any gap in the drawings is fought over, and the contractor tries to get as much money out of the municipality in that process.”
The process makes allowances for cost overruns. The contract accepted on bid day is the lowest initial cost, but it always goes up from there. “I don’t know of a hard-bid-awarded project where the end cost doesn’t go up,” Davis acknowledged, “so they have to make allowances. If they have not, that is where you get into cost overruns.”
It was cost overruns that prompted a move to construction management, according to Davis. In the 1980s, when a municipality or the state was forced to have a lump-sum contract, an architect would design the project, and bids would come in way over the amount of money they had.
“Historically, the industry would say architects aren’t as close to construction costs as the builders are,” he stated, “so that is what spawned construction management. So construction management services start when the architect starts, or after the architect starts, and they help the architect design to the budget that whoever has set aside for that project.”
State law governing the RFP process is interpreted differently, but dictates that any municipality and the state use a lump-sum approach. The other requirements are that contractors be able to provide a bond, that the process be openly bid, and that the state’s prevailing wage requirement be met. In other words, they have to pay whatever the state’s prevailing hourly wage is for various kinds of construction work.
“You can pay more if you want, but you have to at least pay him that prevailing wage,” Davis said. “They have got a lot of job classifications, and all have an assigned prevailing wage (not to be confused with the minimum wage).”
Some municipalities – Milwaukee, for example – require bidders to have a certain percentage of minority-owned businesses. Milwaukee also has a residential preference program, but such provisions vary from municipality to municipality. Where they exist, “you have to hire, or show your best effort to hire, people from underserved zip codes,” Davis said.
Union reunion
With Union South, the process was driven by state agencies. Each year, the State Building Commission approves the budgets for state facilities and guides any policies and procedures regarding building construction.
The Division of State Facilities, within the Department of Administration, is the contracting agency that manages the process. The first thing it does is hire an architect, who is selected purely on qualifications, and the architect might begin working on the project before the DSF starts the construction management process.
The DSF has requirements regarding who can respond to a construction management proposal. First, a contractor must have built the kind of project the state is proposing, and one at least half the size in terms of money budgeted.
“We had done some student unions before Union South, but there haven’t been many of that size and scope – $94.8 million – built around here for a while,” Davis said.
The State Building Commission assigns a review committee, previously comprised of state employees but now open to citizen members, which makes a short list of worthy construction managers. Committee members typically interview four prospective “CMs,” rank them, and eventually award the contract.
In the RFP, the state spells out the project budget beforehand. Would-be contractors are asked about the aforementioned construction capabilities and about past history, experience, and management team. The state spells out the project budget beforehand. After the construction manager is selected, the CM facilitates the process of soliciting bids and selecting subcontractors. After reviewing all the bids and data, the state usually accepts the recommended subcontractors.
“In rare cases, they don’t,” Davis said. “It’s a very open, transparent process.”
When bidders get further along in the process, there are some time-consuming details that have to be expected. “You have to anticipate the time it takes for approval, and the extra paperwork that can come along with some of the requirements, such as the requirements for the local hiring practices,” Davis counseled. “You have to be ready for that and anticipate it.”
Going public
Georgia Roeming, owner of the Geo Group Corp., a Madison foreign language translation business, has experience on RFPs issued by publicly traded companies. To find one’s share of business, the process requires persistence, but the frequency of publicly traded work is so intermittent – Roeming estimates that Geo Group has landed 34 projects since 2006 – outside observers might wonder why the company bothers to devote the person-hours.
The answer lies in the size of the contracts. While the company’s average order is approximately $2,200, an RFP project from a publicly traded company can be worth upwards of $250,000 over the life of a three-year contract. “If a publicly traded company goes out for an RFP, they spend a substantial amount of money,” Roeming noted. “It’s a lot of work on their end, too. If they are going to go through that, it’s usually going to be a contract in the six figures.”
Recently, the Geo Group has responded to proposals from the likes of Navistar and Boeing. Some are more involved than others, but as a privately held company, Geo is reluctant to provide financial information until the company is one of the final contenders.
There was a time when the translation industry was not very stable, and corporations looking for a reliable partner were left holding the bag. Some jobs were too big for certain translating agencies, while others went out of business, and to some extent the Geo Group still fights the resulting perception.
Adding to the difficulty is the lack of an online clearinghouse where would-be vendors can find information about proposals out for bid. Corporations know who’s still around to provide translation services, in part because larger translators have very aggressive sales teams, so prior relationships are an important factor in who is selected.
Roeming estimates that 80% of corporate translating business goes to incumbent services. Simply learning of available jobs requires ample due diligence. Some jobs are out of the question, as is the case with Abbott Labs, a pharmaceutical giant that prefers translators that specialize in life science work.
Geo Group lands about 10% of the RFPs it devotes time and effort to, but it does benefit from the occasional referral from trade magazines and the American Translators Association, and by attending business events like Expo Tech. The event puts them in front of some of Wisconsin’s prominent manufacturers, who increasingly need translation services because they are selling more overseas.
It doesn’t hurt to find the people in a prospect organization who use the services you sell.
“Try to find the person in the company that is using the product you’re selling because then you are talking to them directly and finding out what their needs are,” Roeming advised. “It might be the goal of procurement to get the lowest possible price, but it might be the goal of the person actually using the product to get the best possible quality.”
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