What you need to know about the lowest bid

All contractors are selected for most remediation projects in a similar manner. Multiple contractors submit bids for how much they would charge to complete the required work detailed in a drawing and specification package. Once all of these bids are submitted they are reviewed by the consultant and owner. Following this review, most often the lowest bid is selected and this contractor is awarded the contract to do the work.

The theory behind this method is that all of the contractors are submitting their price to do the exact same work. Thus, the lowest price will be the cheapest way to get the work done.

But if everyone is providing pricing for the exact same work why aren’t their prices the same?

Many will attribute this to the difference in pricing from subcontractors or different markup rates. Contractors will also have differing labour rates for their internal employees and have differing general requirement pricing.

That should cover all of the reasons for differing prices right?

Not always.

Consultants do their best to be detailed in their specifications and drawings, in order to ensure contractors can accurately prepare pricing to account for all of the required work.

Sometimes however there can be items requiring clarification to determine the exact work needed. Diligent contractors will submit a request for information (RFI) to fill in any gaps in the information to ensure their pricing is accurate. Despite best efforts (and sometimes due to a lack of effort), some items of required work may not be included in the bid by some contractors and yet the same items may be caught by others.

This disparity between the work required by the client and the work priced by the contractor doing the work can lead to difficulties in executing the project smoothly. This is particularly the case when there is a disagreement as to whether the required work was adequately specified by the consultant.

In some cases missing a portion of the work in their pricing results in a contractor being the low bid and being awarded the contract for the work. When a significant portion of the project is missed in the pricing the following may result:

  1. After discussion with the consultant and owner, change orders are issued to increase the contract price to account for the missed pricing, which results in a significant increase in the contract price. This may even result in the price becoming higher than any of the other bids submitted for the work. Thus, while the contract was awarded to the contractor who submitted the lowest pricing for the work, the owner may end up paying more than any of the other bids for the work to be completed.
  2. The contractor is left to absorb the extra costs which they didn’t account for in their pricing. This can result in significant financial losses to the contractor and in extreme cases the contractor may have to forfeit the work. If the original contractor forfeits the work it is often given to the contractor who submitted next lowest bid (and the owner is very stressed for the remainder of the project hoping the same thing doesn’t happen again).

The results are rarely convenient for all parties when something has been missed in pricing and a contract is awarded based on that incomplete pricing.

So what can be done to prevent this from happening?

Luckily most consultants know of this risk and go through all received bids in detail, in order to catch anything that may have been missed in the pricing.

If you are a consultant, here are a few things that you can do to minimize the risk of awarding a contract based on insufficient pricing:

  1. Ensure the specifications and drawings are clear and present the required work in sufficient detail to ensure adequate pricing.
  2. Provide a bid form for each contractor to fill out that has sufficient detail and is broken down in a way that you will be able to easily compare bids and spot anything that may be out of line.
  3. During the bid process respond to RFIs in sufficient detail providing addendums as required. And don’t just respond with “please bid as per the drawings and specifications.”
  4. Go through received bids in detail comparing the different line items proportionately between bids.
  5. Reach out to contractors with any questions you have about their bids.
  6. For complex projects, after going through the bids, bring in each contractor and go through the scope of the work and their pricing with them to ensure they are on the right page as to what needs to be done.

It takes a bit more time and effort but it is possible to minimize the risk of items being missed in received bids. This time is well spent and can prevent some hard conversations during the course of the work.

At Taylor Construction we pride ourselves in providing accurate pricing for every job we are asked to quote. We take the time and ask the questions needed to help ensure we are accounting for all of the required work in our bids.

If you would like to have us bid on your next project, click the button below to contact us. We look forward to hearing from you.

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