An Examination of the High Cost of Low Bids

How many of us have submitted bids that were well constructed, engineered, and thoroughly considered in terms of the best interests of our customers, suppliers and, yes, profitable to our companies, only to find when the contract reviewers considered all the submissions they accepted a proposal that was 20% to 40% below all others?  It is not possible to thoroughly consider the Request for Proposal, the design, engineering spec’s, materials and all the replies to RFI’s (Request for Information) and have that great a divergence in pricing.  Simply put, it is not possible if the customer wants the product as designed at the end of the installation or construction.  Most studies show that a reasonable variance if all things in the proposals are equal and accurate is +/- 2%.  A greater difference than that 2% and you will find any number of Change Orders, incomplete construction, non-specified materials, deviations from design, suppliers unpaid, and jobs that cannot be finished.   It remains the best rule of thumb for selection in the bid process is to remove the lowest bid, the highest bid, and select from those remaining by the best technical solution and the most complete bid.  Unfortunately, that requires experience, knowledge and understanding of the proposal being reviewed.

When our projects over the last 20 years are considered there are several that fall into the class of ‘an adventure in low bid’.   The first of which is one that was for a phone system in new construction for a residential facility in a medical complex.  Our competitor was well-entrenched, and their trusted bid was 40% below ours.  The anguish over that one for us was immense.  After speaking with the contracting officer, we ask to see the worksheet they submitted.  Considering that the contract was already signed, our request was approved.  It was readily apparent that there was a major component (at a cost of thousands of dollars) left out of their materials.  The contracting officer’s reply was “They must have another solution.  They would not just leave it out for the sake of low bid.”  The solution was a Change Order.  Even though it was the low bid, the customer still did really want their system to work as designed.  The Change Order was paid and paid far in excess of a reasonable cost for the excluded component.

The next big disappointment with a low bid was for a long-time customer of ours that was building out a new facility.  The Contracting Officer felt they really needed to ask for competing bids.  We agreed it was a good practice.  The low bid that they accepted was 25% below ours.  They moved forward with it and shortly after moving into the new facility, the customer came to us complaining they were having server problems and difficulty with their phones as well.  We suggested they contact the cabling contractor.  Their installer did not respond.  When we arrived at their new site answering their work request, we requested their As-Builts and Test Results, a normal part of any construction.  What?  They did not receive any of these from the contractor.  How can that be?  We began examining and testing their cable.  The physical examination revealed all manner of materials installed and little worked as it should.  The appearance of this job was one of cleaning out a warehouse; anything and anywhere.  There were mismatched jacks and cables on every run and splices without any meaning, except that the leftover cable from another job was just too short to complete a run.  Our test results and site visit to correct and repair what we could was paid for over and above their low bid.   Their installation remained substandard, but to pull it and reinstall as designed was cost prohibitive.  Generally, it is 20 to 25 years (warrantied for 25 years) before a well installed facility must be re-cabled.  In this case, the workstation at the end of each line and the workstation with the worst mismatched connectors were the real losers; except for the Contracting Officer who lost his job.

The final scenario is one where the low bid continues to cost the customer to a greater degree than even the last.  This was an RFP (Request for Proposal) that required stringent qualifications and certifications, was designed and engineered to specific standards and materials.  The engineering designer provided an estimated minimum price for the installation of more than one million dollars.  The Low Bid Contractor’s bid was more than 20% below that minimum price.  This low bid was accepted, and the contract was signed.  The difficulties began to be apparent when the low bid contractor’s qualifications and certifications were revealed and confirmed as falsified.  Well, the contractor said they could do the job and they were already under contract, so the customer moved forward.  Then the materials began arriving, but they were not the specified materials.  The project would not, could not function with inferior and incompatible materials on top of previous installations. The correct and specified materials were mandatory except they required additional training the low bid contractor did not have.  The training was part of the pre-purchase requirement to order the materials from the manufacturer.  Consequently, from the beginning the project was behind schedule.  Months went by with the project dragging further and further behind.  When construction was more than a year behind schedule the low bid contractor was paid to leave.  To this day there are still unterminated and unfinished runs, and no test results.  Someone will finish it at great expense to the customer who celebrated a low bid.

In each case we were there when it needed to be fixed.  

Everyone knows “When it has to be done right, it has to be Aspen.”

Related Articles

Free Estimate

When you work with Aspen Communications LLC, dba Aspen Engineering & Contracting you will have a full team of dedicated engineering & contracting professionals ready to help you 24/7.