Construction Bids: Beyond a Good Estimate

Ramani Sundaram
When bid results are out, the owner is keen to see whether the number is within his or her budget, the contractor wants to know who won the job and the owner’s estimator is eager to know if the winning bid is above or below his or her estimated number.

If the variance is within the allowable range, it enables the owner to proceed with the job. Otherwise, it leads to problems like a delay of contract, rejection of bids, re-design, re-bidding and so forth. When bids go over budget, it is customary to think that the owner’s estimator or the estimating consultant did not complete the estimate correctly.

There is no exception to a good estimate, but beyond a good estimate, certain other intangibles may also influence bid prices.

There is no exception to a good estimate, but beyond a good estimate, certain other intangibles may also influence bid prices. In spite of conservative pricing, other factors such as restrictive bid requirements, complex bid packages, ambiguous ‘alternates’, etc., can impact the bid value.

Similarly, if the bid documents produced by the architect are unclear or inconsistent, it may have an influence on the bid numbers. Bid variances caused due to external factors like market conditions, bidding climate, etc., are not within anyone’s control but the aforementioned factors, if managed well by the owner and the design team, can reduce the bid variances. Some approaches that the owner and the design team may follow before issuing the bid are described below.

Bid Package – Considerations for the Owner

  • Make the bid package simple and avoid complexities [1]: ensure that the overall scope\bid form is clear and alternates, if any, are defined well. If the scope is confusing, bidders may be quoting a higher price to avoid the risk.
  • Follow proven and accepted forms of contracts [1].
  • Limit excessive use of bidding restrictions or requirements [1]: For example, take a public project with 4 elevators and 2 escalators and the same bidder produced a quote for both the escalators and the elevators as one package. The escalators had custom specifications with only two manufacturers who could meet them. Their price was expected to be high, but unexpectedly, the bidder quoted an abnormally high price for the elevators, which had standard specifications. If the ‘elevators’ had been issued as a separate package, it would have invited more competition and resulted in a lower price.      
  • Nominated suppliers or prequalified sub contractors: make the estimator beware of the requirements and additional markups to be applied to the budget estimate.
  • Include unit price bid items: this is a better option for items that are difficult to quantify and following this option will reduce risk to the contractor. It benefits the owner also as payment is made only for the actual quantity performed.
  • For example, for piles, a base length may be included in the bid and actual quantity exceeding this base length may be paid as a unit price item.
  • Set a realistic bid period: it precludes a thorough bid compilation if it is too short. There is likelihood of bidders losing interest or making increases if it is too long. Also monitor the market and carefully target the bid date [1].

Bid Documents – Considerations for the Architect

Drawings: the architect should realize that besides reflecting the design, the drawings also determine the cost [2]. The architect should make sure that the bid drawings are clearer and more consistent.

Specifications: unless there is specific requirement, it is better to follow standard specifications and avoid custom ones. For example, in one of the projects where the author worked, the specifications indicated type-316 stainless steel for the exterior canopy instead of type-304 that is common for this type of structure. The bids came 3 times higher than the normal due to this reason.

Constructability review: review design and specifications to identify and correct conflicts, duplications and omissions in the contract documents. Recommend changes to specifications if it is found that it will limit competition or cause delay in delivery. "Be wary of phrases such as ‘in a workman-like manner’ or ‘match existing’ without a clear and objective description of materials and workmanship" [3]. Remove ambiguities and improve contractor’s ability to understand drawings, specifications and scope.

Alternates: the architect should suggest “alternates” only as an enhancement to the project scope and as far as possible should ensure that the base bid design covers the project requirements within the available budget. The alternates should not be presented as a cost-cutting afterthought [2].

Addendum: the architect may issue “addenda” to clarify scope or complete inadequate documentation to provide answers for questions that may arise from a pre-bid meeting. After issuing the bid documents, the issuance of many “addenda” may undermine the confidence in the design and documentation [2] and may result in higher bids.

Scope creep: unmanaged scope changes may occur during the final stage and this often results in increased cost. Sometimes an estimator prepares the Construction Documents (CD) estimate based on 90% design documents. The architect follows it with the 100% CD\bid documents making some changes and these documents are issued to the bidders. In such a case, bid values are likely to differ and so the architect should identify changes if any and inform the estimator in time to make revisions in the budget as required.

Bid variances can be reduced if attention is paid to manage other factors as outlined above. Beyond an estimator’s line item costs and markups, the final bid number is also dependent upon the above intangibles. A committed effort by the owner and the design team to manage these intangibles well will ensure that there is no budget overrun and result in reducing other associated problems like project delay, re-bidding, etc.

References

[1] Moss, J. Budget Busts: The Influence of Demand in the Construction Market, Cost Engineering - Vol. 45/ No. 3. Morgantown, WV: AACE International, March 2003.

[2] ‘Construction Cost Management’. Sherwin, D.

[3] ‘Why Jobs Go Over Budget’. Building Advisor