Tuesday, November 12, 2013

The Problem With Non-Competitive Unit Prices on Bid Forms

Some public agencies request unit prices on bid forms in order to establish these prices up front for potential change order work that may be necessary during construction. 

Unit prices not part of award evaluation:  Often these unit prices are not factored into the evaluation of determining the low bid amount, and are not included as part of the bid award amount.  Public agencies who follow this practice may end up spending more money on change order work.  In other words, if the unit prices are not part of the bid evaluation process and are not awarded, bidders have very little motivation to provide competitive unit prices, since they know that the unit prices they bid will not impact whether they are the low bidder. 

Options for obtaining competitive unit prices:  There are at least four theoretical options available for how to obtain unit prices that are not part of the bid award amount:
  • Unit price not part of evaluation process:  As noted above, an agency may request a unit price for potential change order work on the bid form.  The risk is that this amount may be much higher than the cost of the work or that could be obtained through a competitive process.  This approach is not recommended.
  • Unit price requested, subject to negotiation:  This option is similar to the first option, but the agency adds language to the bid form noting that the agency reserves the right to reject unit prices included on the bid form and to negotiate an appropriate cost when change order work is needed.  This additional language mitigates against the most serious concern of non-competitive unit prices.
  • Unit price with estimated quantities:  In this approach, the basis for evaluating and determining the low bidder would add the base bid to the extended amounts for unit price work (including estimated quantities on the bid form and requiring bidders to submit a unit price and extended amount).  However, the agency would only award the base bid (not the unit price extensions), but this process makes the unit prices competitive.  There are disadvantages to this approach that include possible unbalancing of bids by contractors.
  • Negotiate unit prices for change order work:  Under this option, a public agency would not request any unit prices not part of the award on the bid form.  Instead, when change order work arises during construction, the agency would negotiate the cost of the work with the contractor, in accordance with the provisions of the contract.  Typically, change order work is priced based on lump sum or time and materials (if no unit prices are included on the bid form).
Mike Purdy's Public Contracting Blog
© 2013 by Michael E. Purdy Associates, LLC

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