It’s a story you have heard many times: There is an invitation for bids. There are numerous bidders … more than usual. The lowest two or three bids simply don’t make mathematical sense. On paper, it must be an unbalanced bid or an unreasonably low offer. What can you do?
Although a few years old, there are a few lessons learned from the bid protest entitled In the matter of Ken Leahy Construction Inc., Comp. Gen. B-290186 (June 10, 2002). In this case, the Federal Highway Administration (FHWA) issued an invitation for bids (IFB) for construction of a road in the Siuslaw National Forest in Oregon. The base portion of the IFB included construction of 5.3 miles of roadway. The FHWA included 2.3 miles of road as an option because it had not secured all of the rights-of-way for that portion. The bidders were asked to provide fixed unit prices for various line items to perform the base and option portions of the project. The following two bids were submitted:
|Contractor: Elte Inc.||Contractor:Ken Leahy Construction|
|Base: $7,514,9757||Base: $7,046,847|
|Option: $1,697,270||Option: 2,667,241|
|Total: $9,212,245||Total: $9,714.088|
As required by the IFB, the FHWA evaluated the bids by adding together the base and option prices, resulting in an award to Elte. Leahy protested the award primarily on the ground that Elte’s bid was unbalanced, alleging that Elte’s mobilization costs for the option were included in the mobilization line item for the base contract. This was a no-brainer, as Elte’s bid included $1,189,290 for mobilization in the base requirement and only $1 for the option requirement.
The comptroller general concluded that Elte’s bid was not unbalanced since there probably would not be two separate mobilization costs if the option was extended to the contractor. (…Equipment and personnel would already be on site…). On that basis, the comptroller general determined that the factual predicate necessary for unbalanced pricing–actual costs associated with performance of the option line item–was not present in this case.
As you review the decision, you may learn a few tips for dealing with unbalanced bids or unreasonably low offers, including:
- Read the applicable regulations. The Federal Acquisition Regulation provides the appropriate definition of unbalanced pricing, which exists where the price of one or more contract line items is significantly overstated. This can occur despite an acceptable overall price. Confronted with an unbalanced bid, an agency must conduct a risk analysis to evaluate whether the award will result in the Government paying an unreasonably high price for contract performance. Depending on your scenario, the applicable regulations will guide you on what constitutes unbalanced pricing or an unreasonably low bid.
- Understand the specifications. In the Leahy Construction case, the comptroller general addressed the potential "front-end loading" question that could be raised as a result of making the same mobilization payment for the contract both with and without the option requirement. Under the applicable specifications, there was no risk that Elte could receive a disproportionate amount of the contract payment early in the performance period. Section 151.03 of FP-96, Standard Specification for Construction of Roads and Bridges on Federal Highway Projects expressly limits the payment to 10% of the overall value of the contract. The remainder, if any, of a firm’s mobilization cost will be paid after final acceptance of the work. In your case, the specifications may provide justification for including or excluding certain line items in your bid.
- Follow the invitation. Finally, the comptroller general dealt with Leahy’s argument that the contracting officer improperly exercised the option because the FHWA had not secured all of the rights-of-way necessary to build the entire project. The comptroller general rejected this argument for two reasons. First, there was no requirement in the IFB that FHWA secure the rights-of-way before awarding the option. Second, Leahy ignored the express terms of the IFB, which stated that the bids would be evaluated on the basis of adding together the base and option prices. Based on the express evaluation criteria, Elte was the low bidder, whether or not the FHWA exercised the option.
In the end, the comptroller general in Leahy Construction acknowledged that it would be improper for an agency to include an option price in determining the apparent low bidder if it was reasonably certain that the agency would not exercise one or more options.