Do Your Bidding Documents Address Unbalanced Bids?

An unbalanced bid occurs in a unit price bid when the bidder artificially shifts a significant part of the costs for a project from one part of the work to another - to the potential detriment of the public agency.  

Why do bidders unbalance their bids?  Bidders may unbalance their bids in anticipation that certain units of work may be required during the project with significantly higher quantities than the estimated quantity for a particular unit price bid item.  By bidding these unit prices high and other unit prices artificially low, the bidder is gambling and hoping that they can make additional profit on units that will be used more on the project - all the while still maintaining a competitive overall bid price to enable them to be awarded the project.  

The problem with unbalanced bids:  An unbalanced bid works to the potential detriment of a public agency which may end up spending more on a project because of this strategy of a bidder.

Bidding document language:  It is important that bidding documents provide a public agency with the right to reject a bid that is materially unbalanced.  Without such language, it may be harder to reject an unbalanced bid.  The City of Seattle Standard Specification provides that the City may consider a bid irregular and reject it if:

"any of the Bid item prices are excessively unbalanced (either above or below the amount of a reasonable Bid) to the potential detriment of the Owner."

Resources:

• U.S. Department of Transportation.  The Federal Highway Administration developed a May 16, 1988 memorandum on "Bid Analysis and Unbalanced Bids."

• Seattle construction attorney John P. Alhers has written an excellent treatment of the subject on the blog of his law firm Ahlers & Cressman PLLC: "Unbalanced Bids and Unbalanced Schedules of Value - Hidden Dangers for Contractors and Owners." 

Practical tip:  Review your bidding documents to ensure they address unbalanced bids.

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com