Panel on Unbalanced Bidding Procedures

AASHTO Subcommittee on Construction
Contract Administration Section
Panel on Unbalanced Bidding
Jerry Yakowenko (FHWA Headquarters)
Dean Word (Dean Word Construction)
Brenda O’Brien (Michigan DOT)
Byron Coburn (A. Morton Thomas & Associates, Inc –
representing Virginia DOT)
– Bid tabulation and bid reviews are an important
part of ensuring a transparent, fair and
competitive procurement system.
– While the frequency of unbalanced bids is
relatively rare, unbalanced bidding reviews are an
important step in the letting and award process.
FHWA Regulatory Policy
• Definitions (23 CFR 635.102):
– Mathematically unbalanced bid means a bid containing
lump sum or unit bid items which do not reflect
reasonable actual costs plus a reasonable proportionate
share of the bidder's anticipated profit, overhead costs,
and other indirect costs.
• Materially unbalanced bid means a bid which generates a
reasonable doubt that award to the bidder submitting a
mathematically unbalanced bid will result in the lowest
ultimate cost to the Federal Government.
FHWA Regulatory Policy (continued)
• 23 CFR 635.114 Award of contract and concurrence in award.
– “ (c) Following the opening of bids, the STD shall examine the unit bid prices of
the apparent low bid for reasonable conformance with the engineer's
estimated prices. A bid with extreme variations from the engineer's estimate,
or where obvious unbalancing of unit prices has occurred, shall be thoroughly
– (d) Where obvious unbalanced bid items exist, the STD's decision to award or
reject a bid shall be supported by written justification. A bid found to be
mathematically unbalanced, but not found to be materially unbalanced, may
be awarded.
– (e) When a low bid is determined to be both mathematically and materially
unbalanced, the Division Administrator will take appropriate steps to protect
the Federal interest. This action may be concurrence in a STD decision not to
award the contract. If, however, the STD decides to proceed with the award
and requests FHWA concurrence, the Division Administrator's action may
range from nonconcurrence to concurrence with contingency conditions
limiting Federal participation.”
2004 AASHTO SOC CA Section Survey
1) Does your state have written procedures for determining when a bid is materially
2) In the past three years, how many times has a bid been declared to be materially
3) What was the disposition of these circumstances?
2004 Survey (continued)
• 27 State DOT responses were received by the FHWA Office of Program
• From 2001-2003:
twelve states did not declare a bid to be materially unbalanced,
eleven states had between 1- 4 materially unbalanced bids,
two states had 5 –10 materially unbalanced bids, and
two states provided a not applicable response.
• From 2001-2003 states responded to irregular bids in the following
– eleven states rejected all bids and readvertised,
– four states indicated that they declared the irregular bid non-responsive and
awarded to the lowest responsive bidder, and
– ten states responded with not applicable reply.
2004 Survey (continued)
• Seven State DOTs (CA, FL, NC, NV, TN, TX and WI) provided their formal
procedures for evaluating unbalancing.
– Florida DOT’s procedure includes the use of an “Unbalanced Bid Item”
program that utilizes a bell curve distribution to develop a statistical average
unit price for comparison purposes.
– TxDOT’s procedure analyzes:
• unbalanced prices that vary from the estimate outside a specific range.
• utilizes a comparison of the balanced vs. unbalanced monthly payout rates
• calculates monthly payout during the life of the contract based on an assumed schedule.
– Wisconsin DOT Construction and Materials Manual, Section
Unbalanced Bid Analysis, defines significant item and provides a procedure for
reviewing unbalanced bids:
• Link to the 2004 Survey Summary:
Caltrans – Low Bid vs. EE and
Average Number of Bidders
The Contracting Industry’s Perspective
Dean Word (Dean Word Construction)
A State DOT’s Perspective (Michigan)
Brenda O’Brien (Michigan DOT)
Unbalanced Bids
Michigan DOT Practices
AASHTO Subcommittee on Construction
August 17, 2010
Brenda O’Brien, Michigan Department of Transportation
Unbalanced Bids – Michigan DOT
Audit Finding – Lacking a documented
review of bids for unbalanced unit prices
Unbalanced Low Bid Management Review
Team (ULBMRT) established April 2009
Reviews every letting
Identifies potential materially unbalanced
Unbalanced Bids – Michigan DOT
Project Selection
All projects over $5 Million
Random selection of 1/3 of all projects let
Screening Criteria
Line item +/- 15% from engineer’s estimate
Engineer’s estimate line item amount of +/$1000
Secondary screening:
Contractor’s historical bids for respective line item
Bid Item Analysis Check
Unbalanced Bids – Michigan DOT
First year results
21 lettings
353 contracts reviewed
65 contracts sent for further field review
7990 line items reviewed
No individual bids rejected
Two letters of clarification
Two projects pulled, corrected, and re-let
A State DOT’s Perspective (Virginia)
Byron Coburn (A. Morton Thomas & Associates, Inc –
representing Virginia DOT)
Unbalanced Bids
Byron Coburn, PE
AMT Associate
Former State Construction Engineer
August 17, 2010
VDOT History
VDOT has not rejected a bid for being unbalance in over 10 years. VDOT’s
methods have to date overcome the need to reject for unbalance.
VDOT awards between 400 to 600 road work contracts per year.
Nearly all contracts are unit priced type contracts. The actual number of
units used during construction multiplied by the unit price is what the
contractor is paid.
However, VDOT does use some lump sum pay items but there use is
How VDOT Estimates
Just prior to receipt of bids, VDOT performs a rational (real world) estimate. The
estimator puts together a virtual crew, gets quotes on materials, adds
transportation cost, etc; mimicking what a contractor would do. This is done on
all but very simplest of projects. This Engineer’s Estimate becomes in essence
VDOT’s “bid” for the project. This is the estimate used to determine good value.
The low bid should be within 7% of EE to be considered acceptable. When it is not,
VDOT seeks to know why. Since VA Code allows for negotiation to bring price
within the budget, and is otherwise silent to the analysis of bids, VDOT can ask
the contractor questions about how he prepared his bid.
It should be noted that there is no actual negotiations during this analysis; merely
discovery. Therefore, federal regulations are not violated. The bids are examined
primarily for ultimate value (or materially balance); and are primarily focused on
the bottom line.
Memorandum of Understanding
If an unusual unit price is detected that suggests a mathematically unbalanced bid,
the contractor is asked to explain why he priced the item that way. After meeting
with the bidder, the VDOT estimator may consider the information gleaned from
the contractor to re-price the item, and again makes a comparison.
If the price is still outside acceptable range, VDOT usually uses a Memorandum of
Understanding (MOU) to limit exposure to overruns.
A MOU is a supplement to the contract signed by the contractor and the Department,
outlining the terms of the agreement related to unbalanced item. Usually the
MOU will limit the payment of the bid unit price to the quantity listed in the
schedule of items. Any additional units (overruns) are agreed to be supplied at a
new established price that is priced at the current market price. MOUs are used
on about 25 times per year.
A MOU can also limit the Contractor’s risk to underruns if desired.
Zero or Penny Bids
VDOT will accept a zero or penny bid as a legitimate bid if the contractor
can explain and demonstrate why he priced the item that way. The
reason could include that the cost was included in other related items,
the cost is being paid for on another project, there is no intrinsic value
for that work, the contractor’s methods eliminate the need for that work,
Example: On a recent Woodrow Wilson Bridge project, the Contractor bid a
penny on traffic control barrels. He had figured his total traffic control
cost for the project, and it was his company’s practice to covered that
cost in his traffic barrels. He explained that he was concerned that the
quantity shown in the schedule of items would not actually be used, so
he would not recoup his cost if indeed the barrels underran. His
strategy instead was to added his traffic control cost to his mobilization
and place no cost on the barrels. VDOT noted this in the MOU so the
contractor could not later claim that he made a mistake.
Zero or Penny Bids
Example: The contract calls for allying dust thru water truck hours. The
contractor plans to control dust with calcium chloride, the cost for
which he places in another item.
Example: A contractor is currently working on an adjacent project that has
surplus earthwork. He bids .01 for borrow on the new project because
he is being fully compensated for disposal on the current project. This
will likely ensure he is the low bidder.
Unusually Low Bids
When the bottom line price is below the EE by 25%, and there is a 25%
difference between 1st and 2nd bidders, VDOT will allow the low bidder to
withdraw without penalty if the contractor has made a mistake.
If the 1st bidder wants to withdraw his bid, the 2nd bid is analyzed in the
same fashion. If the 2nd is deemed a good value, VDOT may make
award to the 2nd.
Rejection of Bids & Re-advertisement
State law gives the agency the right to reject all bids if deemed in the best
interest of the Commonwealth for any reason other than to eliminate a
particular vendor.
Re-bids in competitive markets usually result in lower bids with the next
advertisement. Last year VDOT saved about $8 million by re-advertising
projects where bids exceeded the estimate. The saving is primarily due
to identifying the risk through the discussions with the contractor, and
then mitigating that risk in the second advertisement.
Should be directed to ;
Don Silies
State Contract Engineer
At email address
[email protected]