Wednesday, March 26, 2014

10 Tips for Dealing with a Bid Price Higher than the Project Budget

What options are available to a public agency if the bid prices received for a public works project are significantly higher than the budget available and exceed the estimate for the project?  What can a public agency do after they've rejected these bids?  What are the next steps and options available? 

Options:  The following are actions a public agency may choose to take in moving the project forward:
  • Talk with bidders:  Talk with the bidders to assess their understanding of the project and its risks and why their prices were so high.  Use this information to help shape your strategy for re-bidding the project.

  • Talk with potential bidders:  Meet with potential bidders who did not bid and find out why they chose not to bid.  Use this information to help shape your strategy for re-bidding the project.
  • Evaluate the design:  Working with your architect or engineer, determine whether changes in design for the project are necessary before re-advertising the project.
  • Bid allowance:  Assess whether any bid allowance(s) amount should be included on the bid form so you're not asking the contractor to bid on an unknown risk.
  • Additive bid items:  Determine if there are any portions of the work that could be split out as additive bid amounts (desirable but not critical bodies of work) so that if prices come in high, you would still have flexibility to only award the base bid. 
  • Accuracy of your estimate:  Evaluate the accuracy of your estimate, possibly by hiring an independent cost estimator to review whether the estimate is appropriate. 
  • More funding:  Seek additional funding for the project if necessary.
  • Recruit bidders:  Actively contact potential bidders encouraging them to bid on the project when it is readvertised, perhaps with changes based on your investigation.
  • Pick a good bid deadline date:  Make sure that the project bid deadline doesn't conflict with other work bidding the same day/week for other public agencies or private entities in the same area. 
  • Liquidated damages:  Evaluate whether the liquidated damages stated in the bid documents were too high and perhaps caused fewer bidders and/or higher prices.  Consider lowering the liquidated damages amount.
Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC

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