Draft Effective Request-for-Proposal to Contractors
When you need to find a contractor for a major project at your center, such as an ongoing job like landscaping, or a one-time job like replacing roofs, don’t simply hire the first available contractor you can find. Instead, prepare a request-for-proposal (RFP) to solicit bids from multiple contractors. But be specific when drafting your RFP. That’s because if your RFP contains only basic information, such as the due dates for bids and the start and end dates of the work, and doesn’t include other important items, such as the precise scope of the work or a set of drawings, it could put you in danger of hiring an unqualified or overpriced contractor. And that may, at best, make the project more costly and, at worst, lead to litigation.
While, typically, tenants don’t have the lease right to either review an owner’s RFP or require that the owner follow a particular RFP-related set of protocols, using a well-drafted RFP can show a tenant that you’re making an effort to have the ultimate cost of the work be reasonable and the work itself comply with applicable building codes. Tenants should be comfortable with that. But poorly crafted RFPs can create misunderstandings between you and your contractor that may lead to delays and unforeseen costs that cause tenant disenchantment with you and your management team. To avoid this, include these 13 items in your RFPs.
Follow Basic Checklist
The RFP is a complex document that describes the type of work your center needs done, and asks contractors to submit price bids for the work, along with a description of the type of work they’ll provide. The RFP you send to potential contractors should include at least the following nine items:
[ ] When bids are due;
[ ] Requirement that contractors interview with you;
[ ] Date by which you’ll award the contract;
[ ] Dates by which the work must be started and finished;
[ ] Types and amount of insurance the contractor must have;
[ ] Number of required references the contractor must provide;
[ ] Name of the center employee who will supervise the job;
[ ] Any potential penalties for not completing the job in accordance with the contract; and
[ ] Contractor’s obligation to submit proof of proper bonds and licenses.
Consider Additional Points
To make your RFP as effective as possible, incorporate these four points into the checklist of basic items you’ve already included:
Precise scope of work. The most important thing to do when preparing an RFP is to spell out the precise scope of the work to be done. The description of the scope of work should tell contractors exactly what you expect them to do for the price they bid. Without a specific description of the scope of work, you may have a hard time evaluating contractors’ bids. It’s always possible that contractors will come up with different plans for how to do the work, leaving you with a range of bids to choose from. If you end up hiring the lowest bidder, you may not get the best solution for your problem—or the best deal. For example, if you’re looking for a roofing company to do major roof maintenance, but one company plans to replace the roof, and another simply plans to tar over defects, the difference in price won’t reflect which deal is better, since it costs more to replace a roof than to tar over defects.
Additionally, not precisely defining the scope of work you want done could lead to misunderstandings between you and the contractor you choose—which, in turn, will lead to wasted time and money. For example, in the roof repair example, the job would probably have to be re-bid. Or, if it’s too late to re-bid the job because you’ve already signed a contract with a contractor, that contractor will probably have to submit change orders to correct all the misunderstandings.
No contractor is going to do a more extensive job than planned just because he agreed in his bid to “repair roofs,” says New York real estate attorney Steven J. Shore. “Instead, he’s going to submit a change order to document a different price to do the more extensive work—and you may not be prepared for these additional expenses,” he warns. “One contractor once confided to me that he looked for mistakes and omissions in the RFP, and if he found enough of them, he would make an intentionally low bid to get the job, because he figured he would be able to make his profit by submitting change orders later to cover the work not included in the RFP,” says Shore.
Sometimes contractors want to bid on only a portion of the work you need done. If you decide to accept bids on portions of the work, make sure your RFP explains how you want contractors to break down their fees for each aspect of the work. For example, you might tell utility auditors that you want them to bid on the job per utility. That way, you won’t have one auditor bidding for just the electrical auditing, and another bidding for the entire job, and then be left trying to figure out whose electrical auditing service is cheaper. When contractors use different breakdowns, it’s hard to compare their bids, and you may not end up with the best price for the work.
Complete set of drawings, plans. It’s also important to attach to your RFP a complete set of architectural drawings or other types of plans you’ll want contractors to follow in completing the work. An RFP is only as good as the papers attached to it. If they’re bidding based on a set of architectural plans, and the plans aren’t as complete or detailed as they should be, contractors will bid higher to cover contingencies, which could mean you won’t get the best possible price for the job. Or the contractor might bid an intentionally low price and then submit subsequent change orders to cover the additional work.
Requirement to submit proposed contract. Make sure your RFP requires all contractors bidding for the job to include with their bid a copy of their standard contract. For example, if your RFP is seeking a company to handle all of the center’s landscaping needs, require contractors to provide a copy of the maintenance agreement they typically sign with their customers. If you’re deciding between two landscapers whose prices are the same, their respective maintenance agreements might help you choose which one to hire.
For example, if the maintenance agreements have different cancellation rights, you may want to choose the landscaper who gives you the most flexibility to terminate the agreement. A contractor’s standard contract can tell you a lot about it. For example, a well-drafted, professional contract implies certain things about a contractor’s work habits, while a handwritten, unprofessional one should signal that its work may also be shoddy.
If you require all contractors bidding on the job to provide a copy of their standard contract along with their bid, you can send it to the center’s attorney for review. If you find out that the contract is too one-sided, you may have to draft one of your own to use in place of the contractor’s, or add a few clauses to make it acceptable.
Practical Pointer: Whenever possible, especially for major projects, use your own standard contract, which can be customized for the particular job, advises Shore. “If you use the contractor’s contract, you’re going to get a two-page contract that protects only it,” he says. Include your contract with your RFP and tell contractors that they must agree in advance to your contract terms in order for their bids to be considered. “If you wait until after the bidding process has been completed to negotiate the contract, the contractor has better leverage,” he warns.
Explanation of how bids will be evaluated. Decide how you’ll evaluate bids, and include in your RFP an explanation of the process you come up with, suggests Shore. Doing so can benefit you in a few ways. First, it will help avoid allegations that the process was unfair. Explain upfront, for example, that all bids will be reviewed by an engineering firm that has no stake in the outcome.
Also, by deciding on your evaluation process up front, you’ll be prepared to evaluate bids as soon as they arrive, instead of first having to decide on a process at that time. If you’re going to have all bids evaluated by, or in conjunction with, an engineering firm, you should interview firms in advance so that you have a firm ready to get to work as soon as bids are submitted. But hiring an engineering firm to evaluate contractors’ bids can be expensive. To cut down on the cost, try to qualify contractors first, and then send RFPs only to those that seem to have the best qualifications and let them compete for the job.
Remember that bids can be quite difficult to understand and interpret. Because property owners generally don’t have the expertise needed to understand and interpret bids on highly technical jobs, they should use the technical support they have available to them to help them do so. For example, whenever it’s possible, work with licensed engineers when evaluating bids that require that kind of expertise.
Insider Source
Steven J. Shore, Esq.: Partner, Ganfer & Shore, LLP, 360 Lexington Ave., 14th Fl., New York, NY 10017; www.ganshore.com.