Wednesday, December 4, 2013

To Reject or Not to Reject All Bids

Most public agencies reserve the right to reject any and all bids in their bid documents.  It's a good practice to have this language.  What are some of the reasons all bids may be rejected, and when is rejection of all bids problematic?

When it's okay to reject all bids:  The following are some of the reasons when it may be appropriate for a public agency to reject all bids and re-advertise the project:

  • Cost: If the bid price of the lowest bidder exceeds the budget available, a public agency is bound to reject all bids.  The project can then be re-advertised, with modifications to the drawings and specifications to reduce scope.  As part of the process of re-advertising, public agencies should have discussions with the bidders to find out what risks or uncertainties they may have seen in the project that caused the bid prices to be so high. Requesting additive bid amounts for certain bodies of work that are desirable but not absolutely necessary for the project can function as a bid protection tool so that all bids do not have to be rejected if the agency only has sufficient funds for the base bid (and maybe some of the additive bid items).
  • Problems with the bid documents:  Sometimes the bidding process or bid documents are flawed and it is clear that bidders made widely differing assumptions about the work.  Or perhaps, there were very few bidders, a potential sign that there may be problems with the design or the requirements of the bid documents.
  • Protest or lawsuit:  Sometimes a bid protest or lawsuit may ensnare a project and the most effective means of maintaining a critical schedule is to reject all bids and re-advertise.  In other words, it may be quicker to reject all bids and re-advertise to get the project back on track than to go through the protest and lawsuit process.  Developing clear bid documents (drawings, specifications, bid form, etc.) is one of the best tools for helping to avoid protests and lawsuits during the bidding process.
Problematic reasons for rejection of all bids:  The following are reasons why all bids should not be rejected:
  • Possible protest or lawsuit:  Just because there are rumors or fears of a protest or lawsuit being filed, it is not generally a good reason to reject all bids and re-advertise.  First, a protest may, in fact, not materialize.  Second, even if a protest is filed, it should generally be dealt with on its merits rather than automatically rejecting all bids.  Consult with your agency's attorney in evaluating the issues associated with a bid protest or lawsuit.  If, however, a protest is filed that will delay the project beyond what the schedule can handle (see above), rejection of all bids may be appropriate.
  • Bids as cost estimating tool:  Some public agencies have used the bidding process as a tool to estimate the cost of a project and to seek funding, and then automatically reject all bids once bids have been received.  Bidders spend a lot of time and money in estimating and bidding a project, and it is inappropriate for public agencies to take advantage of contractors in this manner.  Federally funded projects require that public agencies develop an independent cost estimate before bidding.  In Washington state, public agencies are required to develop an estimate of each public works project before bidding in accordance with the requirements of RCW 39.04.020.
Consequences of rejecting all bids:  There are at least four consequences to rejecting all bids and re-advertising a project:
  • Cost to bidders:  There is a real cost to bidders in estimating and bidding a project, and a re-advertised project may reflect higher prices to compensate bidders for their previous bids.
  • Prices exposed:  Because the bid prices of all bidders are known to all bidders, it may cause some bidders not to bid a re-advertised project.  Another response of bidders may be to re-bid the project, but cut their bid price to beat the previous low bid, even if such a price is either at their cost or with a very small profit margin.  Projects generally work well when the contractor is making a fair profit, but can become challenging projects when the contractor is losing money.
  • Schedule delay:  Rejecting all bids and re-advertising may negatively impact a project's critical schedule dates.
  • Higher costs:  Depending on market conditions, a bid that is re-advertised later may result in higher prices due to increased costs for labor and material.
When to reject all bids:  Rejection of all bids should not be done lightly as there are consequences to doing so.  Nevertheless, there are situations when it may be the most appropriate course of action.

Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

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