Construction contracts are often selected based on the lowest bid from a responsible bidder. That certainly seems like a sensible starting point — although it’s probably a good idea to take the quality of previous work into account. It’s not so hard to be labeled responsible and offer a low bid, but to produce a service that’s inferior to competitors.
But that’s just the beginning of the story. Line items in bids themselves can sometimes be misleading — either accidentally or on purpose. If elements of an agreement are underpriced, the contractor recoups missing dollars through change orders that adjust and diminish original plans. There’s also a problem when bidders structure the payments in such a way as to make them higher than it may appear – for example, front-loading costs at the beginning of a project.
This phenomenon – items priced too low or too high — is dubbed “unbalanced bidding.” It can lead to project costs that are greater than estimated and it can lead to bid awards that are ultimately unfair to competitors.
Recently, the Oregon Secretary of State’s audit division released an audit examining this issue in the Department of Transportation. It looked at how bids compared to the DOT’s estimates and also analyzed changes in project cost over time. It found that 61 percent of 413 projects completed between 2011 and 2015 had “one or more unbalanced bids that were at least double their estimated costs.” In 69 percent of projects, the final contract costs exceeded the bid amounts, although the total project costs of $1.8 billion were still slightly under the original budgeted amount of $1.9 billion. (The contract cost is only one part of the total project cost, which can also include a variety of other factors such as fuel or steel prices.)
The audit stated that Oregon “could potentially realize significant savings by better tracking and scrutinizing bids” and thereby avoiding project cost increases. It also emphasized that unbalanced bidding can “undermine fair competition.”
As Secretary of State Dennis Richardson said in a press release: “Unbalanced bids allow some contractors to game the system, and ODOT is not providing proper accountability.”
The accuracy of the audit’s calculations were questioned by ODOT, which pointed out to the Oregonian that final contract costs include many other factors that don’t appear in project bids. The DOT did agree, however, to step-up its monitoring of bids.