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Construction Industry Folklore
Unlikely Bidding Systems
Arthur O'Leary, FAIA, MRIAI

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Mythical Bidding Systems. All through the years we keep hearing about innovative, unusual, and creative construction bidding systems. We hear that someone has devised an imaginative new system that cures the supposed evil of the low bidder. Most of the stories of this type are undoubtedly apocryphal.

One old wheeze that has made the rounds and resurfaces periodically is purportedly from Europe or New Zealand or some other indeterminate place where the people are far more ingenious than we are. The system involves inviting a number of contractors to submit proposals and then awarding the contract to the second lowest bidder. Presumably, the intention is to eliminate the low bidder who must have made a mistake and will undoubtedly cut corners to avoid losing money.

In all fairness and practicality, the bidders would have to be told in advance that being low bidder will not get them the job. Can you imagine the consternation and confusion this would cause among the bidders? Contractors prepare and submit bids only for the purpose of obtaining work and not for the educational benefit of obtaining bidding experience. It costs a great deal of money, proportionate to the size of work, to prepare a competent, serious, and reasoned proposal.

Bidding to Get the Job. Normally, an estimator reasons that the way to land the job is simply to submit the lowest bid. Therefore all efforts are directed toward assembling the lowest combination of labor, materials, and subcontracts. Close attention is given to elimination of all unnecessary costs, promotion of maximum efficiency, and shortening of the construction period. By what rational logic could a contractor bid to be second? It is easy to know how to aim for the lowest position but how does one aim for second place? This system is not only impracticable, but in my opinion, has never actually been used. Nevertheless the story keeps recurring.

Another Ingenious System. A variation of the same system is even more fascinating. In this version, the supposedly sophisticated owner or architect has decided to eliminate the lowest and highest bids on the basis that they must be considered erroneous. Then the remaining bids are averaged and the bidder closest to the average is assumed to have the correct price and is awarded the contract. This imaginative scheme would severely tax the resourcefulness of the most clever estimator in the quest for a successful bid price. This unusual bidding method keeps coming to our attention, but it is difficult to visualize informed and pragmatic contractors participating in it. The narrator of these fanciful tales can never disclose the names of the actual participants or the specific place where it ever supposedly occurred.

Suspicion of the Low Bid. Bizarre bidding systems will continue to be discussed and seem firmly ensconced in construction industry folklore. Whenever severe contractor shortcomings come to light, some cynics will conclude that it is on account of the low bidder always getting the contract and that there is something inherently suspicious about a low bidder. This is dubious logic however because substantially all contracts are awarded to low bidders so obviously all contractors in difficulty would have been a low bidder. But, we must always remember that most outstanding projects are also built by the low bidder.

Often the reasons contractors are in some sort of trouble could have been discovered in advance by reasonable review of qualifications prior to the onset of the bidding procedure. If incompetent, inexperienced, and undercapitalized potential low bidders are eliminated before bidding, then the eventual low bidder will be of a higher quality.

There is no justification to eliminate a low bidder for any ground that could have been discovered before contractors have incurred the significant expense of preparing their proposals. After weighing these considerations, it seems safe to assume that the low bidder system is here to stay.

Practical, Fair, and Ethical Bidding Procedures. AIA Document A701-1997, Instructions to Bidders, has been developed over many years of experience and consultation among contractors, architects, insurance and legal counsel, and project owners. The AIA procedure is firmly based on the reasonable concept that the owner will award a contract to the lowest qualified bidder.

* * *

This article is adapted from one that originally appeared in the May 1993 issue of California Construction Law Reporter. 

A Guide to Successful Construction — Effective Contract Administration by Arthur F. O’Leary, FAIA, MRIAI and Construction Nightmares, Jobs From Hell & How to Avoid Them, By Arthur F. O’Leary and James Acret, Esq. are available at www.bookworkz.com.

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