ConstructionPro Week, Volume: 4 - Issue: 50 - 12/31/2015

When Is a Low Price Too Low?

By Bruce Jervis

 

Public project owners are required to solicit competitive bids and proposals in part to assure favorable prices for construction work funded by the taxpayers. Sometimes, however, the lowest price might not be the best deal. If a price is unrealistically low, there is a significant risk that the contractor will perform deficient work and/or fail to complete the project.

 

The Court of Federal Claims recently considered an unrealistic price submitted by a small business contractor on a military construction contract. The procuring agency could not exclude the bidder from the competition without first referring the matter to the Small Business Administration for a “certificate of competency” responsibility determination.

 

Price realism can be evaluated in a number of ways: comparison against competing bids, comparison against past prices for similar work and comparison against independent government cost estimates. Do you think the issue of unrealistic pricing receives enough attention? Is the matter addressed effectively and consistently? Your comments are welcomed.

 

COMMENTS

The first step for the public agency to take when a very low price is received is to perform a though scope review with the bidder, design agent and agency looking t identify mistakes, gaps and ambiguities which lead to improper assumptions. If errors have been found , the low bidder should be given the opportunity to withdraw. Our University solicitations are covered by a bid bond and the selected contractor by a payment and performance bond, that is all administration and does not guarantee the timely delivery of a functioning project.
Posted by: Paul DePace PE - Thursday, December 31, 2015 9:32 AM


The fallacy of the competitive bidding process (aside from the issues raised by Paul DePace) is that multi-facited. First and foremost (from a subcontractor's point of view) is that all the general contractors want is the lowest price they can get. That in turn allows them to low ball a bid. Everyone is focused on pricing. But very few want to investigate what that pricing represents. There are many examples in which bids are offered below market pricing in the hopes of getting change orders later (spurred on by error ridden solicitation documents). However, the over-riding sentiment today is to offer the absolute bare minimum thereby just meeting the specifications with absolutely no consideration of quality and reliability. Unfortunately today, no one builds with the future in mind, just enough to get by in the short term.

The biggest problem I have recognized in the past 10 to 15 years is that the design houses (A&E, Gov't Contracting, etc) is that level of knowledge and professional effort to put together a proper solicitation package is sadly lacking. In many cases, the specification writers have little to no expertise in what they are specifying or reviewing.
Posted by: Seth Kohn - Thursday, December 31, 2015 11:18 AM


As a contractor, I agree with the above comments by Paul. In addition, the less specific and detailed the bidding documents are the larger the bid spreads will often be. A contractor will sometimes make optimistic assumptions where specifics are unclear in an effort to be low bidder. Time and money invested on a carefully detailed set of bidding documents, thoroughly and accurately describing the work, is well spent.
Posted by: John Miener - Thursday, December 31, 2015 11:28 AM


In a sealed bid scenario, the government is required to accept the low responsive bid and award to the responsible bidder. A contractor who low balled a project in hope of making it up in change orders is taking a big financial risk. And if the contractor fails to meet the requirement of the contract, a prudent owner should not hesitate to exercise the default provision when warranted. At the end of the day without good set of plans and specifications and good contract provisions, it is difficult for the owner/government to properly enforce the contract.

In the scenario that is described by Bruce Jervis, had the government included a provision in the solicitation that stated "if a bid deviates from the government estimate by more than 10%, that bid would be considered non-responsive", then the gov't can toss out a low balled bid.
Posted by: Harold Pierre, P.E. - Thursday, December 31, 2015 12:51 PM


Public works bidding is governed by State Law. Bids that deviate significantly from the field or a professionally assembled cost estimate should be reviewed in as much detail as necessary to determine if the work has been adequately included. I find many times regardless of how little the low bid deviates from the cost estimate that below- standard work and an abundance of contests to the contract documents comes with Public Works territory. Wasting everyone's tax dollars.
Posted by: Francis Matejik - Monday, January 04, 2016 9:03 AM


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Posted by: Vangundy - Monday, January 18, 2016 6:31 AM


 









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