When is a Low Bid Not in the Public's Best Interests?

Most public agencies have competitive bid laws that basically require the agency to award a public works project to the bidder with the lowest responsive bid who is also a responsible bidder.  

Low bids save money, right?  But what happens if the low bid is too low?  It's so much lower than any of the other bidders, and significantly lower than the agency's estimate.  On the one hand, the agency is delighted to have the opportunity to save a significant amount of money.  On the other hand, a bid that is too low may be deceptive, and may end up costing the public agency more in the long run with change orders and lower quality work.

Is there a mistake?  The bidder with a bid that is unreasonably low may, after bid opening, discover an error in its bid, and request the agency to relieve them of the obligation for the bid.  Sometimes, however, a bidder may insist they can perform the project for the amount bid, despite the bid price being so much lower than expected.  

Meet with the bidder:  If a bidder does not claim an error and request to be let off the hook, but the public agency is still concerned with how low the bid is, the agency should meet with the bidder to discuss the following:

• Understanding the project:  Does the bidder understand the scope of work, schedule, and constraints of the project?  Explain the project scope to the bidder and ask questions about whether they understand specific elements of the project.

• Review bid preparation documents:  Review with the bidder at the meeting the bidder's original bid preparation documents.  Ask questions about where certain costs have been included in the bid amount.

• Public works requirements:  Is the bidder aware of what is required for performing a public works project with all of its requirements, including but not limited to payment of prevailing wages to workers?  Explain the various reporting requirements and administrative expectations that are described in the bid documents.

• Bid guaranty:  Is the bidder aware that requesting to withdraw their bid will not result in their bid guaranty being forfeited?  The only situation in which a public agency may tap into the bid guaranty is if the agency awards the project to a contractor who then refuses to execute the contract.   

Dealing with a non-cooperative bidder:  What should a public agency do if a bidder refuses to meet with them to discuss their bid, or refuses to provide their original bid preparation documents for review by the public agency?   Unreasonably low bids are submitted by bidders, so it's a good idea to anticipate how to handle them when they occur.  One way to address this situation is to include language in the Instructions to Bidders that gives the public agency the right to require the bidder to attend a pre-award evaluation meeting and to provide their original bid preparation documents to the agency for review.  The language could specify that failure to do so would result in the bid being declared non-responsive.  Here's some potential language that could be included in the Instructions to Bidders:

Bid Evaluation Documentation and Meeting:  In order to verify that the Bidder has adequately incorporated all elements of the Work and the requirements of the Contract Documents in its bid prices, the Bidder shall, upon request of the Owner, promptly make available for the Owner’s review a complete itemization and breakdown of its Total Bid amount, a description of the Bidder’s understanding of the Work, and a proposed schedule.  Prior to award, upon request of the Owner, the Bidder and proposed subcontractors and suppliers shall attend a bid evaluation meeting with the Owner, and shall bring to the meeting any documents requested by the Owner to assist the Owner in evaluating the bid and the Bidder’s understanding of the Project.  In the event the Bidder refuses to provide the requested information or attend the bid evaluation meeting, the Owner may reject the bid as non-responsive.

Ask your attorney:  Be sure to involve your agency's attorney in approving language for bid documents, and to assist in evaluating a bid that is too low.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC 
http://PublicContracting.blogspot.com