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The City of Philadelphia is on track to comprehensively modernize its “old-school” procurement regulations, which have not changed since 1951.
The proposed method, dubbed “Best Value,” will be put to Philadelphia voters in the form of a ballot referendum next May. “Best Value" is a practice employed successfully in 18 of the top 20 largest U.S. cities, as well as many states and the federal government.
Under the current Philadelphia Charter, the city’s Procurement Department awards bids based on “lowest responsible bid” – in other words, the contract is awarded to the lowest bidder deemed responsible to carry out work. The city’s hands are tied when it comes to considering any other evaluation criteria or making the best use of taxpayer dollars.
Using the best value procurement approach will enable Philadelphia to award contracts based on other matters, such as past performance and schedule – important factors that currently must be ignored in awarding the bid.
The move to best value was spearheaded by Philadelphia Mayor Jim Kenney, who created the post of the Chief Administrative Officer to focus – among other things – on bringing Philadelphia’s procurement practices into the twenty-first century.
In the Fall, then-Chief Administrative Officer, Rebecca Rhynhart, testified to Philadelphia City Council that shifting to Best Value makes sense. “With the ability to evaluate vendor proposals up front and to take other criteria (such as schedule and past performance) into account, we anticipate more projects being completed on time and on budget.”
Rhynhart (who recently left the city to seek elected office), explained to Council members why the city’s existing low-price policy doesn’t make sense in the modern world, because change orders drive up the final price. “It is important to remember that the lowest bid price—our current practice—does not necessarily lead to the lowest final cost to the city, or the best use of public dollars.”
“We expect this change to Best Value to decrease the number of change orders on Public Works projects, saving time and money. Also, with the ability to negotiate, we expect an increase in responses, which we anticipate to lead to lower costs to the city.”
Perhaps most significantly, Best Value will allow for participation of more qualified vendors and contractors. It will open the city’s marketplace to more opportunity for business than ever before, including minority, women, and disabled-owned business.
Philadelphia City Council, by a 16-0 vote, approved putting the question of changing the Charter to allow for Best Value procurement to voters next May.
Philadelphia Not Alone In Challenging Conventional Approaches
The move toward best value procurement methods is not new. Between 1997 and 2003 adoption of the best value concept was voluntary in the United Kingdom. Scotland emerged as a leader in applying best value policies after the Scottish Parliament separated from Great Britain. Scotland set the tone for the shift to best value procurement when it established 32 local authorities with budget authority in procuring public services that ranged from education to street cleaning to housing and welfare services. Scotland’s success in using best value principles led to the establishment of best value concepts under the Local Government in Scotland Act in 2003.
In the United States, best value procurement is allowed for federal government projects under the Federal Acquisition Regulation, and many states allow best value procurement for construction projects and for procurement by various agencies and jurisdictions, such as cities, counties, school districts, colleges, airports and water and sewer districts. Several states have modified their procurement policies to allow for best value, including Alaska, Alabama, Arkansas, California, Florida, Kentucky, Maine, Minnesota, New Mexico, Tennessee, Texas, Vermont, and Virginia.
Best Value In Action
A great example of best value procurement occurred in the aftermath of the I-35W Bridge collapse in Minnesota on August 1, 2007, killing thirteen people and injuring 145.
Following the tragedy, the need to build a new bridge on a vital transportation artery as quickly as possible achieved crisis proportions. The Minnesota Department of Transportation (MnDOT) Office of Investment Management estimated the daily cost to motorists at $400,000 due to the long alternate routing that was necessary. The State Department of Economic Development estimated an additional net economic impact of $113,000 daily. And the Minneapolis Chamber of Commerce said the daily cost to business exceeded half a million dollars.
Then-Minnesota Governor Tim Pawlenty challenged MnDOT to complete a replacement bridge within 18 months, a virtually unheard-of goal. It typically takes that long (or longer) just to identify the scope of a project the size of the I-35W Bridge.
To reach his goal, MnDOT approached the rebuild in a radically different way. Within 18 hours of the disaster, stakeholders met to decide how to proceed and quickly employed a rarely used state law that granted authority to use a best value approach rather than the conventional cost plus lowest bid approach.
Suppliers were selected based on a six evaluation criteria:
1. Safety, including a safe project area and a solution consistent with MnDOT design and construction standards
2. Quality, by implementing a quality management system
3. Schedule, the completion of construction (goal was to complete by December 2008 - within 17 months)
4. Environmental compliance, by providing a product with minimal impacts to the environment
5. Budget, through implementation of innovative solutions to maximize return on taxpayer investment by reducing costs and improving the quality of the transportation system
6. Aesthetics, by using visual quality techniques and a context-sensitive design to incorporate the bridge into the surrounding environment
The results were nothing short of fantastic. The 1,220-foot state-of-the-art I-35W Bridge was opened for traffic under budget and ahead of schedule—just 13 months after the collapse. The project was the Grand Prize Winner from America’s Transportation Awards for “representing the best in innovative management, accountability, and timeliness.” It also went on to win numerous other awards.
A Call To Change
Bob Gleason, Division of Purchases & Supply, Virginia Department of General Services, believes state and city procurement organizations are in an ideal and unique position to help states drive change through the use of best value contracts and concepts.
“In Virginia, our state’s procurement goal is to achieve a high level of value for money in every enterprise master agreement,” Gleason says. “Developing the optimal contract that incorporates best value concepts is an art, and the value in this is interpreted in the eyes of the beholder – our clients. Our challenge is to continuously adapt our decision-making to dynamically deliver the best value in each business situation...market turn...conflicting priority...and complex need, for each client. We – like many states and cities – have begun that journey. I have personally been pleased to see how incorporating best value methods are creating real value for our clients and ultimately the state taxpayers.”
Bottom line: while Philadelphia is not the first to make the shift to best value procurement – it is admirable that city leaders like Mayor Kenney are taking take the much-needed first step to more progressive procurement practices.
Now it is up to Philadelphia voters to see the vision and approve the changes in the City’s old-school Home Rule Charter.
