It has been rumored for years the lowest bidder was the one always the one that made the biggest mistake. It is no where near always but it does happen rather frequently. In my experience I would place it as happening on 10% of the bids. Why do contractors make mistakes in preparing the bids? How can owners know if a mistake has occurred?
In the construction market, prime general contractors are bidding work with about 3% to 4% profit as a part of the bid. Cost reimbursable work is being bid with smaller margins. Specialty contracting has larger margins. Owners can spot potential problems at bid time by two methods. The primary method would be by having a reliable estimate prepared for the bid evaluation estimate. This estimate would be based upon the same plans and specifications used by the bidders. If there is a substantial variance from this estimate by the bidders the owner now has a tool to evaluate the bids.
An alternate method, that is less reliable as a stand alone evaluation method, is to review the bid amounts. Is there a significant grouping of bids? Is there one or two bids more than 10% lower than the second bidder? If so, how can they make money if margins are only 3%-4%?
What mistakes can a contractor make at bid time? There are many! They use the incorrect bid amount from subcontractors because they did not read the subcontractor scope letter or none was provided. They did a transposition of numbers. They cut and pasted cost information that did not get carried to the total sheet. And there are more. On one set of bids I reviewed, the apparent low bidder – with the biggest mistake – forgot to include the painting and carpeting on the project! They were not awarded the job.
When a mistake happens or a contractor is “goofy low” at bid time, it is likely the owner is in for a difficult project. The contractors will need to find a way to make up for their mistake. The subcontractors may get beat down on prices, the supervision and support may be less than required, or the material quality may be cut. One way or another it is in the best interests of the facility owner or developer to make sure they are getting the true value for their project at bid time. Awarding to the low bidder that made the biggest mistake is not the way to do this!
One Comment
Iowa law provides relief for a contractor who is the apparent low bidder due to a mistake in its bid. However, in order to withdraw its bid, the contractor 1) must give notice to the Owner immediately that there is a mistake in the bid; 2) demonstrate the nature of the mistake (such as forgetting to include the painter’s subbid price); 3) demonstrate that the mistake was not the result of negligence but rather was because of a clerical or other similar error (I know this sounds self-contradictory, but that’s what the law says); 4) the mistake cannot be one of judgment, such as merely underestimating the number of manhours necessary; and finally 5) the mistake needs to be “material;’ that is, it needs to be sufficiently large such that to require the contractor to sign the contract or forfeit the bond would be unreasonable. Generally, a bid mistake of 5% or more would satisfy the materiality rule.
If all of the above requirements are satisfied, the contractor would be entitled to withdraw the bid and get its bond back.
This is the general law in Iowa, in any event.
John Templer