Open and Fair Competition

Economics 101: More Bidders = Lower Prices

Really, it's common sense. The more qualified contractors bidding on a construction project, the lower the price. Competition drives down the costs in every industry and construction is no different. It forces contractors to sharpen their pencils and provide the best results for the best price.

Eliminate the competition, and the price goes up. That's Economics 101.

Case Study: The Fall River Fiasco

In 2005, the City of Fall River planned construction of five new schools, but the fateful decision by the mayor to adopt a PLA caused the bids to soar far over budget, delayed construction, and in the end, reduced the project scope from five to four schools.

Fall River's is a cautionary tale of how pandering to special unions is a costly mistake.

When Fall River announced plans to build five new schools, 75 contractors - union and non-union - were pre-qualified for the job. Then the mayor adopted a Project Labor Agreement, and the negative impact to the taxpayers was quickly felt:

  • Only 36 of the 75 pre-qualified contractors submitted bids.

  • On the Slade School, no union contractors submitted electrical sub-bids

  • The bids were grossly over budget.

  • Matthew J. Kuss Middle School lowest general contractor bid was 25% over budget.

  • Sub-contractor bids on the Slade and Small schools were 40% and 75% percent over budget respectively.

  • The roofing bid on the Small School was $1.3 million when budgeted for $250,000

The Merit Construction Alliance filed a lawsuit against the city, arguing officials had failed to justify use of a PLA according to the strict requirements of an earlier Supreme Judicial Court ruling. In the face of a costly lawsuit and bids coming in far over budget, the mayor relented and dropped the PLA.

Without a PLA the picture improved dramatically for the city.

  • 60 of the 75 pre-qualified contractors participated in bidding.

  • Kuss School sub-bids dropped 13%, or $3 million, without a PLA.

  • Slade School sub-bids dropped 15%, of $1.7 million, without a PLA.

  • Three electrical contractors submitted bids without a PLA, when none had been submitted under a PLA.

Overall, the City of Fall River and its taxpayers saved $8.5 million from lower construction costs and by reducing the millions of dollars it needed to finance, thus reducing the amount of interest payments. Unfortunately for taxpayers, the delay caused by unaffordable, union bids and the rebidding process resulted in lost time and increased cost of construction materials. In the end, the city was only able to afford four of the five new schools.

Perhaps the saddest part of this tale is that it was entirely preventable. Had the city started out without a PLA, it would have built five new schools for a fair price. Even the mayor learned the lesson.

"With more bidders, you tend to get a better price," he told the Fall River Herald News.

Click here to download news accounts of the Fall River Fiasco.