Bids are in and your project is significantly under the estimated budget. But before you celebrate, is that really a good thing? While a bid that is higher than anticipated leaves the Owner questioning how they will complete their project, a bid that is significantly low is also cause for concern. The old adage “you get what you pay for”, has stood the test of time because it’s accurate. Let’s discuss how to evaluate if your low bid is really a good deal.
The first step is to determine if it is a bad budget or a bad bid. While a bad budget is certainly not ideal, there are many reasons why a budget number can be higher than it should be. This scenario is not as concerning to the overall project as a bad bid. We check this by evaluating if all bids received support the low bid or if it is an outlier. If the low bid stands apart from the others, the engineer needs to determine why the bid was lower than expected and where the differences in pricing lie.
There may be valid reasons that the bid is low and asking a few key questions can provide valuable insight. The low bidder may be a local contractor who can perform quality work more efficiently than out-of-town bidders. Depending upon the current environment, some contractors may be aggressively pursuing jobs to maintain enough work for their crew. Or, the contractor may have a methodology for completing the project that accelerates the schedule equating to cost savings.
Ultimately, a direct conversation with the bidder can determine the following:
· Can they complete the work for the bid amount?
· Do they have any concerns/issues with their bid?
The bottom line is that the engineer and the Owner need to understand why the bid was low and feel comfortable with the contractor completing the project at that price. Is there a concern of poor workmanship or cutting corners? Researching the contractors past performance can help determine the quality of work that you will receive. Finally, what resources and financial stability does the contractor have? “Don’t worry, we have a bond on them,” is never a good backup plan. While the job will eventually be completed, completing a project through a bid bond is a long and trying experience that most Owners will tell you they never want to repeat.
In summary, low bids should be accepted whenever possible, but money should not be the only factor in evaluating bids. Consult your team members and make sure your consultant does their research to properly vet an unusually low bid, particularly if it is an outlier amongst bids received. If there are any concerns, discuss them with your legal counsel. This will help determine if the contractor can be let out of their bid so you can negotiate with the best and most responsive bidder. The bidding process can be challenging and overwhelming; however, with the right team members and good judgment, a quality and successful project can be accomplished.