40 local jurisdictions – such as counties, townships, cities, towns, school districts, and hospital districts – in Indiana have passed Responsible Bidder Ordinances (RBOs).
A new report by the Midwest Economic Policy Institute on Responsible Bidder Ordinances (RBOs) provides a better understanding of how communities benefit from awarding bids to the lowest responsible and responsive bidder.
Responsible bidding ensures that public construction projects funded using taxpayer dollars are not awarded to low bidders who cut corners or have poor track records. The public body undertaking the project retains discretion in awarding the project to the lowest responsible bidder. A local unit of government can help assure that it hires only responsible companies by passing a Responsible Bidder Ordinance.
A Responsible Bidder Ordinance (RBO) is a policy that sets minimum requirements for all contractors bidding on publicly-funded projects in a given political jurisdiction. Typically, these requirements include proof of participation in an apprenticeship training program, proof of certificates of insurance, prequalification surveys, and compliance with all local, state, and federal laws. The policies are protection plans for taxpayers, making sure that contractors meet local qualifications and safety standards based on objective criteria and verifiable standards.
Nearly all governments accept the lowest bidder based on “hard” low bids. This type of public procurement puts downward pressure on contractors to reduce quality, cut wages, and avoid contributing to employee health insurance plans, among other items. Reputation, past performance, workforce quality, and even final costs are not emphasized in the low bid model. As a result, this race-to-the-bottom process tends to result in imperfect design plans, cost overruns, change orders, added safety risks, and low-quality infrastructure. An RBO is an acknowledgement that governments should consider quality in addition to costs.
By weeding out cut-rate contractors, RBOs encourage successful project delivery and ensure that taxpayers get the quality they pay for without raising costs for taxpayers. In fact, case studies from across the country have found that RBOs promote higher quality and more reliable services, increased competition among responsible contractors, and reduced back-end reconstruction and litigation costs.
Not only are cut-rate contractors weeded out, but construction workers are also less likely to leave their job and they are more likely to earn a higher wage in counties covered by RBOs (Figure). Quarterly Workforce Indicators (QWI) data was collected on the nine Indiana counties with RBOs.
In the summer of 2016, counties without RBOs had a high 23.3 percent turnover rate of heavy and civil engineering construction workers. Meanwhile, in the counties with RBOs, the comparable turnover rate was 21.7 percent– a difference of 1.6 percentage points. The lower turnover rate of 1.6 percentage points saves money for contractors in the counties with RBOs while also helping to build stable careers in construction, rather than just seasonal jobs.
In addition, while workers in the heavy and civil engineering construction sector earned an average of around $5,800 per month in counties without RBOs, their counterparts in the counties with RBOs earned monthly incomes of more than $6,300 – or about $500 more per month. Construction workers in counties with RBOs earn 8.3 percent more than similar workers in counties without RBOs. By helping to raise incomes, reduce turnover, and boost productivity through apprenticeship training, RBOs help attract and retain productive construction workers.
Responsible Bidder Ordinances can also offset the negative impacts of repeal of prevailing wage on workers and the construction industry. After Indiana repealed its prevailing wage law – Common Construction Wage – in July 2015, wages of blue-collar construction workers decreased by an average of 8.5 percent, with the lowest-paid construction workers experiencing the biggest losses. In addition, construction worker productivity growth was slower in Indiana than in neighboring Midwest states and construction worker turnover increased by 1.2 percentage-points in Indiana. Because counties with RBOs pay construction workers 8.3 percent more in Indiana and have worker turnover rates that are 1.6 percentage-points lower, RBOs can be a local solution for communities who want to maintain middle-class compensation standards, foster stable careers, and address the skills gap in construction when the state chooses to eliminate policies that support workers.
Local jurisdictions in Indiana and across the United States should pass Responsible Bidder Ordinances to ensure that responsible and responsive contractors who provide the highest quality work are awarded public bids. RBOs are a local solution, ensuring that infrastructure projects are completed right, on time, and on budget.
Ultimately, Responsible Bidder Ordinances provide the best value for taxpayers.
Also, check out this video on RBOs!
Midwest Economic Policy Institute 