ConstructionPro Week, Volume: Construction Advisor Today - Issue: 58 - 06/04/2010

Flawed Quantity Estimates and Unbalanced Bidding

A reader recently raised an interesting question regarding a quantity estimating error and unbalanced bidding. The contractor in question had been quite certain a quantity estimate in a bid schedule was greatly understated. The contractor assigned an inflated unit price to this item, while bidding other items basically at cost. The contractor was awarded the contract, only to have the project owner delete the item with the understated quantity. The reader asked if this was permissible.

 

The short answer is probably yes. Assuming the contract contained typical Changes and Termination for Convenience clauses, the owner could delete the work. This is a risk a contractor assumes when it unbalances its bid price. It also raises another issue. There is judicial precedent prohibiting bidders from exploiting known estimating errors. Most bid solicitations require bidders to notify the project owner, prior to bid submittal, of patent errors in the contract documents.

 

I invite your comments on this topic.

 

Should project owners be allowed to award contracts with certain stipulated prices, only to delete items that are financially advantageous to the contractor? Should contractors be allowed to price bid schedules as they see fit, even if they have reason to believe the quantity estimates are flawed?

 

Bruce Jervis, Editor
Construction Claims Advisor

 

Comments

This is an interesting topic/ dilema because sometimes the unbalancing of units is a function of the bid process itself. If there are say 100 items for a subcontractor (electrical, lanscaping, etc) the contractor often has to fill in the majority of the bid form prior to receiving final quotations from subs. If the low subcontractor has a different mix of unit prices than what was entered on the bid form, the contractor, and owner, may end up with unbalanced units. If an Owner deletes, or "cherry-picks" what they think to be high rate items (a not-so-uncommon practice) the contractor is penalized unnecessarily and sometimes unmercifully.

On the topic of the role of the contract schedule of values, consider this:
Can a general contractor claim as damages against a subcontractor increased completion costs of the work if the actual costs never exceed the line item value billed to and paid for by the Owner? As long as the actual costs don’t exceed the Schedule of Values amount for the work has the GC actually been damaged or merely failed to realize "at-risk" profit on the project? Is the “spread” or “buyout saving” between the actual subcontract price and Schedule of Values amount reallocable at the contractor’s whim or should it be used to offset the changed subcontract value? 

 

I have been involved in this exact situation many times in state highway contract bids. In the bid structure different amounts are paid for rock that was "ripped" (i.e. soft rock that a dozer can rip up) vs. rock that had to be blasted. I was an engineer on the estimating team and we took a drill truck and did our own exploratory drilling to determine for ourselves the total quantities of each bid item. We spent weeks and thousands of dollars to do this, most competitors did not and simply used the state estimates 
If the bid team felt the state had miscalculated the quantities, we would use an unbalanced bid to help make us the low bidder as per the states quantity estimate. It was impossible for the owner in this case to delete the item, but final payment is on the quantity of each item you encounter. 
I never felt we were unethical as we has a legitimate difference of opinion on the hidden conditions we would meet. Sometimes the state estimate was better than ours, other times we were right. We spent considerable time and effort to make our determinations and it was a crap shoot on who was correct (of course we were correct more than we were wrong or I would have needed a new job !).
The quantities we are talking about were in the millions of cubic yards on the large interstate highways projects that involved rugged mountain terrain. A extra dollar or two on an item could be a multi- million dollar swing in contract pricing. 

 

If good Contractor's weren't allowed to unbalance their bids, they wouldn't be able to beat the idiots that bid too low and disregard the plans, specification, & estimate. Bid balancing is a way for a good contractor, one who understands the contract documents, to gain an advantage over the foolish contractor. Ultimately, the Agency doesn't want the fool to get the job; therefore, allowing to unbalance their bids (within reason) works to everyones advantage. A "balanced bid" is really an unrealistic ideal; it doesn't exist.

 

I think some common sense has to be used when deleting line items from bids and giving contractors options to re-bid projects based on those deleted items. Often public bid projects have several line items that are very small, with total dollar amounts that are pretty insignificant to the project. Deletion of those items by the owner either to save money or based on a decision that they are no longer required should not entitle a contractor to any recourse.

 

However, when an owner deletes a significant line item, which has a lot of costs associated with it, then a contractor should be allowed some adjustment to other unit prices on the project. It should be recognized by an owner that included in that unit price big item is costs, profit and general conditions and overhead costs that are not necessarily changing just because that item is no longer being performed.

I was an estimator for a number of years, and often unbalanced bids for a variety of reasons. Most often, it is out of neccessity/simplicity. As stated before, often last minute subcontractors and material suppliers will give cuts in their prices. Obviously a contractor can not wait till the last minute to fill in ever bid item, so they typically leave 2-3 open and fill those in, having those items then bear the total impact of any last minute price cuts.

This sort of thing happened AFTER the contract where the GC cherry-picked the major line item of contract out after money was spent by our company for the mock-up, training, labor, etc. Boy were we mad!! We are still in "negotiations" about that. They used a change order which we haven't signed but we could use some suggestions. We're dealing with a government GC working for the Corp! What a mess! I'm thinking of calling my local congressman since I'm from here. What do you think? It' worked when I was in the military :)

 

I think what you are talking about can break down into several different groups. Base bid schedule quantities, Unit price alternates which you cant rely on to make money, and the difference between Architects schedules & quantities & civil engineering quantities. I dont know if the Architect gets the quantities correct, but for sitework you cant ever rely on the civil engineer to get any quantities correct especially cut/fill quantities. Any quantities for unit costs are usually a guess, and nobody knows what you are going to encounter. But if you see a contractor have a really low base bid compared to the other bidders but his unit costs are way higher than they others, then you should see immediately what you can expect from this guy, you will get nickle and dimed to death for every little thing.It is hard for good contractors to make a living when you have so many idiots who lowball jobs just to get work and change order the owner to death.

 

I had a case similar to this-- there was a unit price for large rock defined by what type of equipment was needed to remove it. B/c there was much more large rock than anticipated, the owner elected to blast much of the area, to reduce the rock to being small rock and not, therefore subject to the unit prices. The contractor cried foul. The whole thing created a very hostile working environment for everyone as each felt the other was being unreasonable.

 

Melissa Brumback
www.constructionlawNC.com

 

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