Reviewing and Analyzing Bids

The bid deadline has passed, and it is time to review the bids. You sent them a good bid package, but they are all still going to interpret the scope a differently, and you need to make sure they gave you comparative pricing. Scope misunderstandings usually result in a 50% to 100% difference between high and low. It appears in differing allowances, exclusions, material selections, contractor overhead, and contingency / headache factor.

A good bid package, usually reduces the differences to 15% to 30% between the high and low bids.

When comparing bids, you want to equalize bid differences using the techniques discussed in Bidding – Bid Verification Questions.

During the course of this process, the low contractor’s bid can go up 7½% to 15% and the high contractor’s bid can go down 7½% to 15%. If that happens, the choice often becomes less about price, and more about a contractor’s quality of work and how easy they have been to work with thus far.

What if my bids are all too high?

If all of the bids submitted are too high then you must figure out why.

• Was there miscommunication in the bid documents? The contractors comments should clue you in on this immediately.
• Were there errors in calculation, market changes, price changes, faulty assumptions, forgotten items, or special circumstances that made the project exceptionally difficult? Review your bid comparison form, your scope of work and budget, to find the answer. Send out an addendum to correct the errors that you’ve found and ask contractors to revise their pricing.

Make the correction using the bid addendum, then send it to the bidders asking them to adjust their bid to include the new information.

The lowest bidder usually excludes something you want, while the highest contractor includes things your not even sure that you want. What you need is usually somewhere in the middle. This is why “equalizing the bids” is critically important to evaluating and comparing bids. A contractor’s exclusions are as important as what’s included. If the bid doesn’t mention something from your scope, don’t assume it’s included. The challenge is to identify and to quantify both the exclusions and inclusions.

TIP: If you happen to have more than four bidders and one came back without following directions, or working with one already ‘feels’ difficult, you might consider reviewing their bid last or throwing it out completely, especially if it’s the highest.

Base Bid

Remember, the base bid is the part of the bid you know, at a minimum, you want to have in the project.

Contractors will typically divide the base bid into many individual items. They will outline many items and include them all under a single total cost. Often we get a combination of bids submitted as base bids or individual line items, so we have to use the most detailed bid submitted as a guide to break down the other base bids into detailed parts. Don’t be afraid to contact the contractor and ask about specific item breakdowns.

Alternates

Remember, alternates are items that you want to consider for inclusion or exclusion. You can request alternates in the form of “Option Adds” or “Option Deducts.”

Compare alternates on a unit price or individual basis. During negotiation, it is common to ask one contractor to match a unit price provided by another contractor as described in Bidding – Bid Verification Questions — just don’t reveal the other contractor’s name. Sometimes a higher bidder has a lower unit price for an item than a lower bidder has for that same item. If you negotiate the point right, it means you can get the low contractor to give you the item for the same unit price as the higher bidder, thus negotiating the lower bidders price even lower.

Allowances

In some cases, items may not be well defined, or the contractor may not have a defined source. In such cases, contractors do not have a precise cost for the item so they provide an estimated cost for the item and call it an allowance. The intent is for the allowance amount to cover the cost of the item, but because they are estimated numbers, they are also subject to change. Unfortunately, because contractors risk losing the job if their bid is too high, they often provide low allowances to cover undefined items.

Bid allowances are common. Contractors like them because they are uncommitted, easy to give, and often low, which means the contractor’s costs can easily go up during construction.

Never be afraid to ask how the bidder determined allowance amounts. This information allows you to assess whether or not the assumptions used were correct. If the assumptions were incorrect, correct them and ask the bidder to adjust or eliminate the allowance. The more allowances you accept in the bid, at contract signing, the more cost increases you can expect during construction. Construction – Change Orders discusses how to deal with cost increases during construction.

Using the Bid Comparison Form

To make it easier for you to decide on whom to hire, use the Bid Comparison Form. The Bid Comparison Form helps you visualize and evaluate the contractor bids objectively. As you will read in Bidding – Bid Verification Questions, you will ask the bidders’ questions that will help you objectively compare all of the inclusions and exclusions in the bids.

Using the Bid Comparison Form, list all of the items included in the scope of work. Add rows for items specifically identified in each bid. Then, evaluate what contractors identify and how similar or different they are in price. The bid comparison form will help you visualize and evaluate contractor bids based on what each contractor has included and excluded from their bid in order to compare them on an equal basis.

For example:

Contractor A gives a linear foot price for the first 10 feet of material at $11, with each additional foot costing $5.50.

Contractor B gives a linear foot price for the first 10 feet of material at $47.50, with each additional foot costing $4.33.

If you think you only need 30 feet then contractor A’s price is better based on $11 + ($5.50*20) = $121, compared to contractor B’s price based on $47.50 + ($4.33*20) =$ 134.5.

On the other hand, if you think you need 100 feet, contractor B’s price is a better at $437.20 than Contractor A’s price of $506. Since there are likely many more items in the bid to consider, you can also go back to contractor A and ask that they match the linear foot cost of $4.33 per foot, to get the best from both bidders.

Reviewing and analyzing the bids can take a fair amount of time and require accuracy, so don’t rush. It may take time for contractors to respond to you, and it will take a little time to review and evaluate what they say and do not say. You may have to go back to the contractors several times to get all of the answers you need. Be diligent and be thorough. You can always change your mind about which contractor you select until you sign a contract.

Use the Bid Comparison form to objectively compare all the submitted bids.