AASHTO Subcommittee on Construction Contract Administration Section Panel on Unbalanced Bidding Procedures

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AASHTO Subcommittee on ConstructionContract
Administration SectionPanel on Unbalanced
Bidding Procedures

• Jerry Yakowenko (FHWA Headquarters)Dean Word
  (Dean Word Construction)Brenda OBrien (Michigan
  DOT)Byron Coburn (A. Morton Thomas Associates,
  Inc representing Virginia DOT)

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Background

• 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.

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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.

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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 evaluated.
• (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.

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2004 AASHTO SOC CA Section Survey

• 1) Does your state have written procedures for
  determining when a bid is materially unbalanced?
• 2) In the past three years, how many times has a
  bid been declared to be materially unbalanced?
• 3) What was the disposition of these
  circumstances?

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2004 Survey (continued)

• 27 State DOT responses were received by the FHWA
  Office of Program Administration.
• 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 manner
• 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.

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2004 Survey (continued)

• Seven State DOTs (CA, FL, NC, NV, TN, TX and WI)
  provided their formal procedures for evaluating
  unbalancing.
• Florida DOTs 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.
• TxDOTs 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 2.10.2.1 Unbalanced Bid Analysis, defines
  significant item and provides a procedure for
  reviewing unbalanced bids http//roadwaystandards
  .dot.wi.gov/standards/cmm/210.pdf
• Link to the 2004 Survey Summary
• http//construction.transportation.org/Documents/2
  004surveyonmateriallyunbalancedbids.pdf

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Caltrans Low Bid vs. EE and Average Number of
Bidders
http//www.dot.ca.gov/hq/esc/oe/download.php?idcp
rchart
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The Contracting Industrys PerspectiveDean Word
(Dean Word Construction)
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A State DOTs Perspective (Michigan)Brenda
OBrien (Michigan DOT)
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Unbalanced Bids Michigan DOT Practices

• AASHTO Subcommittee on Construction
• August 17, 2010
• Brenda OBrien, Michigan Department of
  Transportation

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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 bids

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Unbalanced Bids Michigan DOT

• Project Selection
• All projects over 5 Million
• AND
• Random selection of 1/3 of all projects let
• Screening Criteria
• Line item /- 15 from engineers estimate
• Engineers estimate line item amount of /- 1000
• Secondary screening
• Contractors historical bids for respective line
  item

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Bid Item Analysis Check
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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

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A State DOTs Perspective (Virginia)Byron
Coburn (A. Morton Thomas Associates, Inc
representing Virginia DOT)
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Byron Coburn, PE AMT Associate Former
State Construction Engineer August 17, 2010
Unbalanced Bids
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VDOT History

• VDOT has not rejected a bid for being unbalance
  in over 10 years. VDOTs 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 limited.

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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
  Engineers Estimate becomes in essence VDOTs
  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.

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Memorandum of Understanding (MOU)

• 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 Contractors risk to
  underruns if desired.

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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 contractors methods
  eliminate the need for that work, etc.
• 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
  companys 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.

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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.

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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.

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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.

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Questions?

• Should be directed to
• Don Silies
• State Contract Engineer
• At email address
• Don.Silies_at_VDOT.Virginia.gov