When Prevailing Wages Do Not Apply, RBOs Uphold Local Construction Standards
La Grange: An Illinois Economic Policy Institute (ILEPI) study of more than 1,200 public works projects in Illinois and Indiana finds that local responsible bidder ordinances (RBOs) boost bid competition by 8% and strengthen apprenticeship programs, without increasing public construction costs.
Read the Study, “The Impact of Responsible Bidder Ordinances on Bid Competition and Public Construction Costs: Evidence from Illinois and Indiana, 2018-2019.”
Responsible bidder ordinances (RBO) are local construction policies that establish objective criteria and verifiable standards for contractors bidding on public infrastructure projects. Most require contractors to submit proof of participation in apprenticeship training programs, insurance policies, and compliance with all local, state, and federal laws. More than 130 such ordinances are currently in place in Illinois and Indiana, a 76% increase since 2010.
“The purpose of an RBO is to promote minimum standards of competence, quality, and apprenticeship investment on taxpayer-funded construction projects where the lowest bid wins,” said study author and ILEPI Policy Director Frank Manzo IV. “An RBO is a vital policy tool for states, cities, and local contracting bodies that want to prevent contractors with poor track records on performance, safety, and workforce development from gaining an unfair advantage in the competitive bid process.”
While prevailing wage laws often prescribe similar standards on state-funded and federal projects, Manzo notes that only 28 states currently have such laws on the books. Indiana repealed its law in 2015. In Illinois, which does have a prevailing wage law, the procurement code does not explicitly define basic contractor standards to qualify as a responsible bidder on locally financed projects.
“The overwhelming consensus of respected economists is that minimum standards reduce the taxpayers’ risk of contractor non-performance without increasing costs– while strengthening both the apprenticeship system and the local economy,” Manzo added.
In his analysis of more than 1,200 public projects between January 2018 and May 2019, including 265 projects covered by RBOs, Manzo found that the policies actually increased bid competition by an average of 8% but and have not raised overall construction costs. RBOs have produced more competition by increasing the number of signatory union contractors bidding on public projects.
“Without RBOs, many contractors have an incentive to forgo long-term investments in workforce training in order to win short-term bids,” Manzo concluded. “Prior research– particularly in states that have repealed prevailing wage laws– shows how this approach undermines the industry’s need to attract and retain skilled workers, degrades the productivity of the workforce, and fails to save money. By promoting apprenticeship investments and minimum performance standards, RBO projects are not only coming in at the same or lower cost, they are producing more bid competition–. This is better value both for the construction industry and for taxpayers, especially as states and local government look to invest in public infrastructure to rebuild economies in a post-COVID-19 world.”
The Illinois Economic Policy Institute (ILEPI) is a nonprofit research organization which uses advanced statistics and the latest forecasting models to promote thoughtful economic growth for businesses and working families.