Innovative New Bidding Structure Saves Time, Expense for Utility Company and Service Providers
NIPSCO
NIPSCO partners with Davey to create an innovative approach to bidding line maintenance work that saves time and expense for all involved.
The Challenge
Finding the optimal bid structure for a project can help reduce costs and improve efficiency for both client and service provider—but finding one that works well for all parties isn’t always easy. Northern Indiana Public Service Company (NIPSCO) had been bidding line clearance work on a quarterly basis. In the face of an increasing volume of work, the quarterly bidding process was becoming cumbersome. NIPSCO wanted to switch to an annual or multi-year contracting period to streamline the contracting process for both the company and the contractors.
Starting in early November 2017, many alternative pricing options were considered. These included unit pricing (for each type of trim unit and removal unit per region or area), lump sum per-annum pricing, line mile pricing, and a number of hybrid solutions. However, each time a solution was proposed it was found lacking. Contractors were finding it impractical to assess 600-800 line miles and generate a bid in a timely fashion. Also, the uncertainty and risk involved in estimating how much work would actually be involved over a longer period of time was resulting in an escalation of bid pricing. NIPSCO needed a bidding process that would allow contractors to confidently generate competitive pricing in a timely manner over a long-term contract.
The Solution
Davey contacted NIPSCO’s procurement office and offered to partner to achieve a viable solution. Over the course of the next six weeks, representatives from both companies met at least weekly to discuss options and work through a pricing model.
Together, they abandoned the idea of a single price per line mile in favor of a modular pricing approach:
- First, they identified five work elements per standard mile within each service area: trims per mile; small, medium, and large removals per mile; and safe zone removals per mile.
- Using these elements, they then developed a baseline price per mile for each service area within the region covered. This enables contractors to quickly and easily assess a service area for tree density in each of the work elements, resulting in an accurate estimate of work within a short period of time.
- Finally, they developed a mechanism that allowed for a floating price per mile based on the work elements that actually exist at the time of a bid. When work elements show a 15% or greater variance from the baseline pricing unit, the price changes accordingly.
Using the new system, Davey placed bids on three of the nine service areas involved and also created baseline pricing on the remaining service areas to assist NIPSCO with other vendors.
The Results
The new, modular bidding system was put into place in April 2018 and was applied to over 2,000 line miles of maintenance work over all nine service areas. The new methodology is successful for a number of reasons:
- The more efficient bidding structure has reduced the turnaround time to start a project from weeks to days.
- The shift from quarterly pricing to a 3-year contract model has significantly reduced administrative work (and associated costs) from twelve rounds of bids over a three year period to one.
- The baseline structure allows NIPSCO to more easily project and analyze their budget expectations.
- The model offers a great deal of flexibility because the baseline mile and element pricing can be quickly and easily amended when needed; this makes it a viable long-term pricing solution.
All companies involved have been very pleased with the results, and look forward to a much easier bidding experience for years to come.
