As part of a group of new bills impacting small businesses in federal contracting, there are two that are of particular interest to construction businesses.
H.R. 2751 – Commonsense Construction Contracting Act of 2013
This bill prohibits the use of reverse auctions (bidding from high to low) when a construction services contract is suitable for award to small business, or when the procurement is made using a small business program.
With reverse auctions, you start at a very high price and continue to go down from there, basically until somebody blinks and says they’ll do it for that price. It highly favors somebody who has an intensely detailed cost structure and knows exactly what things cost. Truth be told, most small businesses don’t fall into that category.
This bill removes the reverse auction roadblock for small construction businesses. Instead, agencies must use what’s known as best value procurement, where there is a tradeoff between technical approach and pricing, with past performance ratings also taken into consideration.
This is always a better scenario than strictly working on price, because then innovation and new methodologies become part of the conversation, even though they can make the work more expensive, not less.
Construction services are clearly not a commodity – you’re buying materials, but also the installation process and the people involved in putting it together. Reverse auctions discount the importance of quality of labor and quality of construction, under the false conception that it will get you a better price.
H.R. 776 – Security in Bonding Act of 2013
This bill increases the access of small construction companies to surety bonds in order to increase the number of small construction contractors able to participate in the federal market. A surety bond is a promise given to one party to pay a certain amount if the second party fails to meet the terms of a contract.
This is a really big deal. The single most common reason that small businesses can’t compete with large businesses in construction is because they don’t have access to the capital – the bonding. Big companies can afford that; little companies cannot.
Obviously Congress is making a reasonable effort to improve the lot of small businesses, and these are good moves to make.