How to handle a bid that is too low

In the world of public works construction contracting, public agencies are required to award the contract to the responsible bidder submitting the low responsive bid.

Bid is Too Low: But what should a public agency do when the low responsive bid (from a responsible bidder) is so low that the public agency is concerned about the bidder's ability to perform the work?

Impact of Economy on Bidding: Over the last year, as our economy has fallen, most public agencies are receiving significantly lower bids, lower than the estimate, as contractors have shaved profit and expenses just to win the job and keep their workers employed.

Low Bid Concerns: Often a bid may be so low that the public agency has concerns about whether the low bidder really understands the complete project, or whether the public agency will be subsequently badgered to approved unjustified change orders.

Meet with the Bidder Before Award: Before awarding a bid that is significantly lower than the estimate, and lower than the range of other bids, the public agency should meet face-to-face with the contractor to review the scope of the work, the contractor's understanding of the work, and the contractor's original bidding spreadsheets. The purpose of this conversation should be to ensure that the bidder is comfortable with their bid. If the owner has concerns, the owner should attempt to convince the bidder to request withdrawal of their bid.

Risks of Low Bid Contracting: A public agency should not be anxious to enter into a contract with the low bidder just because they are the low bidder, if their bid does not cover all of the work. Likewise, a contractor who has left major elements of the work out of their bid should be petitioning the owner to let them withdraw their bid. A project where the margin of profit is so low or non-existent can often be the project that puts a contractor out of business.

Letting the Bidder Withdraw Their Bid: In the event the contractor determines that their bid price is unreasonably low, they may request the owner to let them withdraw their bid without forfeiture of their bid guarantee. Such a request is really in the best interest of all parties. A project that begins with the contractor believing they will lose money on the project is not likely to be a particularly successful project.

Claim of Error: Typically, bidding documents for public agencies will have provisions for how a bidder may claim error on their bid amount. Often, such notice under a claim of error provision must be given to the owner within 24 hours of the bid submittal deadline. However, a meeting with the bidder to review the details of their bid may not occur until after such a deadline. Nevertheless, the public agency has the discretion to accept a request for withdrawal of their bid, even after the claim of error deadline.

No Bid Negotiation: Whenever a contractor requests withdrawal of their bid, either within the claim of error deadline, or after a meeting with the owner to review their prices, it is important to remember that there should be no negotiation or adjustment of their bid price. The bidder has the option of agreeing to perform the work at their bid price or requesting to be relieved of their liability for the bid. Any adjustment to their bid price, even if they would still be the low bidder, results in bid negotiation, something that is prohibited by most state and federal laws governing public works construction projects.