Why you should not always go with the lowest bidder

Many companies have a purchase policy of going with the lowest bidder. This works wonderfully if you are  buying paper clips or pencils. But it often does not end well for companies that procure environmental or safety related services.

In 2007, a major hydroelectric power plant needed contractors to paint a portion of its 4300 foot penstock. A penstock is a huge water pipeline that connects water from the upper part of a reservoir to the lower part in order to drive its turbines to generate power.

The portion of the penstock that needed painting was over 1000 feet from the entrance which also happened to be the ONLY point of egress. This work site required a confined space permit under OSHA standards.

The company issued a request for proposal and received several bids from painting contractors. It also retained the service of a consulting firm to help evaluate the bids.

The lowest bidder was a contractor that had a history of OSHA violations – some involving fatalities. In the bid review process, this low bidder was determined by the company and its consultant to have the lowest possible safety rating among all the bidders.

But this contractor was selected because it was the lowest bidder. It did not go over the company’s budget limit.

According to government investigator, the painting contractor began work on re-coating a 1,530-foot steel portion of the 4,300-foot penstock. It stored large amount (two 55-gallon drums) of a highly flammable solvent (methyl ethyl ketone MEK) in the vicinity of the paint spraying machine. The MEK was to be a cleaning solvent for the paint spraying wands. On a fateful day, a flash fire suddenly erupted as the vapor from the flammable MEK vapor ignited. The fire spread quickly to nearby buckets of solvent and other combustible epoxy materials.

Five painters working for the low bidder were trapped between the fire and a steep 55-degree slope inside the penstock with no possible way out. They died from asphyxiation about 45 minutes after the fire.

Subsequent investigations by the U.S. Chemical Safety Board – a body created under the Emergency Planning and Community Right to Know Act (EPCRA) – concluded that the low bidder was not qualified to carry out the confined space job and that the company that hired it had failed to ensure proper safety measures and training were taken. The low bidder never implemented a confined space entry program to protect the workers. The investigators also found out that there were no fire distinguishers within 50 feet of the work station as required by law. This was a probable reason why the trapped workers were not able to put out the initial and subsequent fires. There was no way out for the workers.

OSHA fined the company $190,000 for failing to protect its own workers and for failing to arrange for rescues of the workers who perished. The low bidder was fined $845,100 for bringing unsafe electrical equipment into the penstock and failing to provide adequate ventilation and failing to provide and emergency response for the accident.

The fallout did not end there.

The company, the low bidder and two senior executives were subsequently indicted by a federal grand jury in August 2009 for failure to implement a confined space program – among many other criminal charges. Criminal trial is set for 2011.

The Department of Justice also charged the low bidder with “knowingly altered, destroyed, concealed, and covered up records, documents, and tangible objects” in obstructing justice. Cameras, journals and cell phone belonging to some of the employees who died were tampered with –  according to the indictment.

The fact that a contractor with a safety rating of zero and a checkered past was hired solely based on cost is a sad commentary on the purchasing policy of the company.

What is the lesson learned here? If you set a budget to do a task and find out later through the bidding process that no qualified contractors can do the job within your budget, the solution is NOT to hire an unqualified contractor that can do the job within your budget. The proper approach is to either increase your budget or reduce the scope of work.


As evidenced above, in safety and environmental projects, the liability is much higher and more severe than buying the wrong kind of paper clips.

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