When we talk about the case of a true tender, after all the bids have been opened, and the compliance of those bids confirmed, the award will be made to the lowest compliant bidder.
My concern with tenders in general, is the fact that with so many contractors bidding on construction projects the bidder with the lowest price wins, even if they made a mistake in understanding the drawings or documents. This could be a problem for the owner, making a contractor complete a contract after being considerably lower than the other bidders will create performance issues at the very least.
As a tender is a price-based competition, one might naturally assume that the evaluation of bids received in response to a request for tender is more or less a cut and dried process. In reality, price comparison can often be complicated, particularly where a full-life costing approach is being used, or the municipality wishes to do so.
Generally, the use of such an approach must be supported by the terms and conditions of the tender. For such provisions to be effective there must be a settled method for working out the full-life cost. The method must be uniformly applied on a non-discriminatory basis. Discount rates and other estimates must have some basis in reality. Cost elements cannot be too hypothetical.
On a rare occasion (e.g., where all bids received are above the upset price of the contract), the municipality may choose to reject all bids and cancel the tender. Less frequently, a tender may be cancelled and a new contract put out for tender where there is a bona fide change in the requirements for the goods or services being solicited. Any such decision would need to be carefully documented, due to the appearance that it creates of irregularity.
In any such case, it is customary to notify all prospective bidders of the resulting modification of the tender and its cancellation, so as to permit those bidders to participate in the next round if so inclined. Where it is decided to cancel the tender due to a changed requirement, the best practice is to return the bids unopened. Obviously, however, this is not possible if the decision to change the requirements is not made until after the opening.
Even where these requirements are met, the final results obtained can sometimes depart from the initial appearance created by such simplistic measures as the base sticker price for the goods and services to be purchased.
One area of specific concerns in price evaluation is in relation to the so-called low ball bids that I mentioned earlier. The term “low ball” lacks a precise definition, but in broad terms describes any bid that: (a) is so disproportionately below the other bids that are received, that it may reasonably be assumed that the bid fails to cover the supplier’s cost, or (b) it is apparently less than the supplier’s cost plus a reasonable profit margin.
The concern in relation to such a bid covers a fair bit of ground: often, excessively low bids indicate that the supplier has misunderstood the work to be done.
In such cases, the mistake may be genuine, but the probability of mistake gives rise to serious concerns related to whether the supplier will be able to complete work on the contract. Another common assumption is that in submitting a low ball bid, the supplier intends to make up the difference by claiming for dubious change orders or delivering substandard goods or services.
Section 14.404-2(f) of the U.S. Federal Acquisition Regulation deals with this problem by providing that: Any bid may be rejected if the contracting officer determines in writing that it is unreasonable as to price. Many Canadian municipalities have followed suit.
Stephen Bauld is a government procurement expert and can be reached at email@example.com.
Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.