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Staff recommends hiring highest bidder for Austin Energy contract

Monday, December 6, 2010 by Josh Rosenblatt

This Thursday, city staff will recommend to Council the priciest of six bids for a two-year service contract for the transmission and distribution of electrical services. A representative from one of the other five companies told In Fact Daily that he is dissatisfied with the city’s Request for Proposal (RFP) process and upset that staff changed criteria for winning the bid in mid-stream. He also expressed concern that ratepayers will have to bear the financial burden of staff’s decision. 


The contract, which is on this week’s agenda, will provide for electrical services for Austin Energy’s transmission and distribution facilities at a price not to exceed $10 million, with three 12-month extension options.


The city initially received eight bids, but after administrative errors marred that process, City of Austin Senior Buyer Terry Nicholson and AE’s evaluation team chose to call off that request and put out an RFP for rebids—a different method than the one they used originally.


Six companies responded with proposals, and the team chose Pike Electric, Inc. to recommend to Council. Pike is Austin Energy’s current provider of transmission and distribution services.


That result upset the operations manager of one of the other five companies up for consideration, who spoke with In Fact Daily on the condition of anonymity. That source said that he found the city’s proposal-evaluation process unfair and that “it doesn’t make sense to me.”


“Ever since I’ve been in business and servicing the city, they have always stipulated the criteria it took to bid a project: minority participation, a certain number of years in business, etc. And as long as you met those criteria, your bid was evaluated and they always went with the company that offered the lowest bid,” he said.


The source said that’s how the city evaluated the first round of bids, but when they put out the request for rebids, the process changed. Price was now just one of five weighted factors the city would be considering, along with personnel experience, safety policies/procedures, financial viability/stability, and years in the industry. So, despite the fact that his company’s second bid was considerably lower than that of Pike, it scored lower in every other category and failed to win the support of the evaluation team.


“Just because a company’s been in business for 60 years doesn’t mean they’re a better contractor,” he said. “Not in safety, not in price, not in performance, not in equipment.


Pike’s second bid was the highest among the six companies in the running. The source reported that price at more than $8.3 million.


“I feel it’s not in the ratepayer’s best interests – I know that it sounds self-serving – but it’s puzzling to me why we came in with a (lower) bid twice but we’re not going to be the contractor,” the contractor said. “Ratepayers are going to pay over a million more over the next two years than they would have with us.”


It’s unlikely that ratepayers would see an increase in their bills if City Council approves the Pike bid. Austin Energy has not had a rate increase since 1994 and had budgeted more than the amount they will be paying Pike for this contract.


City rules prohibit bidders from contacting the City Council although they may ask the Council not to award the contract to the recommended bidder when the item comes up on the Council agenda.


“We’re trying to get the recommendation overturned or have them bid again because the way that it’s been evaluated doesn’t make a lot of sense to me,” the contractor said. “Outside of the price category, the evaluation process is based on subjective, weighted numbers.”


But Nicholson, who is assigned to Austin Energy, told In Fact Daily that he and the evaluation team decided to weigh the other four criteria as heavily as they did because the contract concerns services, not materials. He said bid price is not always the most important factor in an RFP because RFPs by definition involve labor. “Since this was a labor contract we felt there were factors over and above cost that were just as important,” he said. “Price was still the largest criteria, but we placed a premium on years in the industry as well.”


Nicholson also said that the first time around, the city did, in fact, use other criteria besides cost to make their decision. They put out what is known as an Invitation for Bids (IFB) Best Value, which allows for other considerations besides cost but requires that cost be weighted more than 50 percent in the decision-making process. By making the second contract process an RFP, the city could drop the weight of cost below 50 percent, thereby allowing for stronger consideration of factors like experience and safety, which, Nicholson said, “people at AE felt weren’t necessarily represented correctly the first time.”


“And by the way,” he continued, “Pike was the recommended one the first time as well.”

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