Recent bid experiences on projects help reinforce the critical function bid analysis plays in project success. The examples I will give are smaller projects, but the analysis process and results hold true for larger projects as well. One project illustrates the importance in determining responsiveness to the contract documents, the second illustrates how high bids can indicate adverse market conditions.
Two years ago, we solicited bids for a small school renovation. The project had its logistical difficulties- it’s on an island where materials need to get shipped by boat- so interest was slim. We received two bids, both well over budget. The bids were about 10 percent from each other.
On this project, knowing we had to reduce size or quality in order to meet our budget, we could have decided to negotiate with the low bidder. The attraction to doing this is obvious: the low bid is the bid closest to the budget. Unpacking both bids revealed that choosing to work with the low bidder would have been a mistake.
Two line items stood out: Vertical lift and mechanical bids. For the vertical lift, the apparent low bidder’s number was in line with what we had presumed: about $30,000 for an installed price. The high bid had a much higher number: $60,000. It turns out the high bidder had questioned whether a vertical lift would satisfy the State Fire Marshal. On some projects vertical lifts are not acceptable substitutes for true elevators. So, they included the cost of a true elevator in their bid. We had received regulatory approval for the vertical lift. In essence, the high bid was $30,000 too high because of a conservative decision to avoid a potential change order during the project.
The mechanical bid from the low bidder was about what we had expected: $50,000. The high bid mechanical number was closer to $100,000. As we unpacked the mechanical bid, we began to suspect the low bidder had received a bid that was predicated on scope and quality reductions, while the high bidder’s number reflected the actual contract requirements. In other words, the low bid mechanical number assumed changes to the contract requirements; it was not a responsive bid.
After backing out the vertical lift and mechanical differences, the high bidder turned out to be the more responsive bid, as well as the actual low bid. When we received an unkind email from the apparent low bidder that was copied to his attorney, we knew we were correct in choosing the high bidder.
Architects who assume bids are the result of rational market forces and transparent flows of information risk hurting their clients.
Adverse Market Conditions
The second experience was also on a school renovation project. This time we had four bidders, three of whom were bunched very closely. The fourth bid was very low, and turned out to have a math error that caused the bidder to pull their bid.
When three bids are very close to each other, one naturally assumes the line items in the bids must also be close. On this project, that was not the case. A significant portion of the work- metal panel siding- elicited only one subcontract bid. The three remaining bidders saw that number, and two of them used it. The third bidder looked at the number and decided to self-perform the work.
After talking to the bidders and realizing what happened, it became clear the single subcontractor bid of about $350,000 was about $130,000 too high. This is a significant amount for a project in the $700,000 range. A phone call to the material supplier revealed another error. The material supplier had bid 11,000 square feet of material, when the project required 8,000 square feet.
How did the bids end up so close when one bidder’s metal panel number was $130,000 less than the others? The other two bidders were that much more competitive on the rest of the project. In other words, significant variation in line items were cancelling each other out between bidders.
The bid analysis indicated the very similar bids were all around 20 percent higher than they should have been. Some were too high because of the metal panel bid. Others were too high because of painting, drywall and general conditions lines. We had put the project out to bid just weeks before summer vacation and the school construction season. Bids were high for lack of interest. On this project, the owner correctly decided to defer the project until the following year. In a more reasonable bidding environment, we would expect to see a contractor competitive across the range of line items.
These two projects illustrate the importance of bid analysis. Architects who assume bids are the result of rational market forces and transparent flows of information risk hurting their clients. A few days of phone calls and emails can uncover a range of mistakes, wrong assumptions, and unsharpened pencils.