State DOT Procedures for the Evaluation of Materially Unbalanced Bids
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1 State DOT Procedures for the Evaluation of Materially Unbalanced Bids On April 30, 2004 the AASHTO Subcommittee on Construction, Contract Administration Section initiated a survey concerning the evaluation of unbalanced bids. The survey asked the following questions: Evaluating Materially Unbalanced Bids* 1) Does your state have written procedures for determining when a bid is materially unbalanced? (If yes, please forward a copy to me at the above address.) 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? (reject all bids and readvertise; award to second low, etc.) Summary of Responses 27 State DOT responses were received by the FHWA Office of Program Administration. Several states cited their standard specification language for unbalanced bids, irregular proposals, or consideration of proposals. Five State DOTs provided their procedures for evaluating unbalanced bids. See the summary below. In the past three years, 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. Considering the approximate 20,000 construction contracts let annually by the states, the issue of materially unbalanced bids is an issue that occurs relatively infrequently. The disposition of an apparent irregular bid varies with each state and in some cases, may depend on the unique circumstances for each contract. Several State DOT specifications provide options for: a) award to the apparent low bidder, b) award to the apparent second low bidder (or next responsive bid that is not materially unbalanced), or c) reject all bids and re-advertise. In the past three years, 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. Overview of State Procedures for Evaluating Unbalanced Bids
2 Seven State DOTs (CA, FL, NC, NV, TN, TX and WI) provided their formal procedures for evaluating unbalancing. o Most of these procedures provide for a comparison of the mathematically unbalanced bid items with the engineer s estimate, a review of potential overrun / underrun items, and a determination of whether the unbalancing is of such magnitude that it would affect the order bids. o Florida s 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. FDOT s procedure also describes an option for desk and field reviews to assist in identifying other factors that may have led to an unbalance bid. Finally, FDOT includes an option for a post-bid review with the contractor to allow the contractor to substantiate or explain their bid. o Florida, Nevada and Tennessee s procedures use the term materially unbalanced in describing a bid for which there is reasonable doubt that awarding to the apparent low bidder would result in the lowest ultimate cost to the State. o Texas s procedure analyzes unbalanced prices that vary from the estimate outside a specific range. The range is 100% above or 50% below the estimate for major items and 200% above or 75% below the estimate for minor items. Major items are defined as 5% of the contract or $100,000 whichever is less. TXDOT s procedure is also unique in that it utilizes a comparison of the balanced vs. unbalanced monthly payout rates to determine whether a bid is mathematically or materially unbalanced. TxDOT calculates monthly payout during the life of the contract based on an assumed schedule. This payout is compared to the estimated payout of the second bidder. If earlier payout to the low bidder results in loss of interest to the State in an amount greater than the difference in low and second bid, the bid is determined to be potentially materially unbalanced, as it may not result in the overall lowest cost to the state. o North Carolina s procedure is unique in that it utilizes a contractual provision to retain any funds that are in excess of a reasonable price until the last partial payment estimate. Article defines a reasonable unit or lump sum price to be the average of the Engineer s Estimate and the individual balanced bid prices received from the other bidders for the item in question. NCDOT believe that this provision provides a significant disincentive unbalancing by front loading.
3 Cumulative responses: 1) Does your state have written procedures for determining when a bid is materially unbalanced? AK - The Alaska DOT/PF does not have a written procedure for determining when a bid is materially unbalanced. AR - We don't have written procedures to determine when a bid is materially unbalanced. We do accept zero bids, which some might consider materially and mathematically unbalanced. We do require Asphalt Binder to be bid at $120/ton minimum and Mobilization is limited to 5% of the subtotal. CA - Yes. Our Ready to List and Construction Contract Award Guide discusses unbalanced bids and provides direction to the districts. Also, in June of 2002, Caltrans provided direction specifically on the subject of unbalanced bids. CT - We use the FHWA Guidance. FL - Yes. See section 3.3(d) in the attached document: (See attached file: pdf) GA - We do not have written procedures for determining if a bid is unbalanced. IA - The Iowa DOT does not have written procedures to determine when a bid is materially unbalanced. ID - The Idaho Transportation Department does not have a specification or procedure for determining when a bid is materially unbalanced. IL - No IN - No KS - No written procedures. KY No. MA Cited Massachusetts Standard Specification: 3.01 Consideration of Proposals ME cited Maine DOT standard specification Unbalanced Bids MN -FHWA Guidelines MS No NC - We have a procedure for determining unbalanced bids but do not distinguish between materially and mathematically unbalanced. ND We have no written procedures. NE We do not have a written procedure for defining a materially unbalanced bid. NH - No NV - Yes we have written procedures to evaluate bids, however nothing specifically describes "materially unbalanced" other than the definition itself. Typically, there must be very strong information supporting this conclusion. The procedures are attached. OK - OkDOT does not have a written procedure, however, materially and mathematically unbalanced bids are defined in our Standard Specifications in Subsections and and reference is made to the issue in the form of a "Notice" placed on each bid proposal, which states: The Department reserves the right to reject any bid as irregular that is found by the Department to be either materially or mathematically unbalanced. A bid is materially unbalanced when that bid generates a reasonable doubt that award to a bidder submitting a mathematically unbalanced bid will result in the lowest ultimate cost
4 to the Department. A bid will be found to be mathematically unbalanced when the bid contains lump sum or unit bid items that do not reflect reasonable estimated costs plus a reasonable proportionate share of the bidder's anticipated profit, overhead costs and other direct costs. PA - We do not have written procedures. TN - Yes, a MS word document with the body of the memo is attached. TX TxDOT response is attached. VT - Vermont does not have a written procedure for determining when a bid is materially unbalanced. WY - We have used the information provided by FHWA but not with formal written procedures of our own. 2) In the past three years, how many times has a bid been declared to be materially unbalanced? AK - No bids have been declared to be materially unbalanced. AR - In the past 3 years, only one bid was considered mathematically unbalanced (not materially unbalanced and not the lowest bid on the project). CA - There have been no instances of bids being declared materially unbalanced; however, between January and June of 2001, there were three instances of bids being rejected due to material unbalancing by the low bidder. CT - Approx. 3-4 times FL - None GA - We had one project we declared unbalanced in the last three years. IA - I didn't dig up the records, but I'd guess we have been able to determine a bid is materially unbalanced only a couple of times in the last 3 years. ID - None IL 5 to 10. IN None KS Appx 5 KY - KY - No bids have been declared to be materially unbalanced. MA - We have only had to reject a couple of bids for being unbalanced. ME - 0 times (Although we have this specification, we have not utilized it.) MN 3 projects MS N/A NC None ND - None in the last 3 years NE - We have declared one bid as materially unbalanced in the last 3 years. NH - None to my knowledge NV - 3 contracts. OK - None, in the last three years. PA- No bids have been declared to be materially unbalanced. TN - approximately 3 times TX no response
5 VT - To the best of my knowledge, there was one bid in the past three years that was declared to be materially unbalanced. WY - None 3) What was the disposition of these circumstances? AK - Although ADOT/PF has not rejected an unbalanced bid, we came close to taking that action 5-6 years ago. If that had happened, the Department of Law advised us that we would go to the second low bidder (if not materially unbalanced itself). AR - We awarded the contract to the low bidder (the unbalanced bid was considered irregular and rejected). CA - In each of the cases mentioned above, the low bidder's bid was rejected and the contract was awarded to the next low bidder. CT Readvertise. For more information regarding this issue, please contact Pall Oushana at FL N/A GA - All bids were rejected. IA We reject all bids and readvertise the project if there is enough time to do so without putting the timely completion of the project in jeopardy. However, most of the time there isn't enough time, so we award the materially unbalanced bid. IL - Reject and readvertise. IN N/A KS - Rejected and readvertised after we corrected the reason the contractor unbalanced. KY - No bids have been declared to be materially unbalanced. MA - We rejected all bids and readvertised the projects. ME N/A MN - 2 projs. rejected and readvertised, 1 proj. awarded (Determined not to be materially unbalanced by the Office of Construction after further review) MS N/A NC N/A ND N/A NE - We rejected the low bidder and awarded to the second low. NH - Award to second low NV - All bids were rejected and the contracts readvertised in these instances. OK - N/A; however, it would depend on the individual circumstances. Could reject or award to second low. PA - Not applicable based on response to 2) above. TN - Reject all bids and readvertise. TX no response VT - The decision in this case was to re-advertise the project. WY NA - As stated in the letter sent out, mathematically unbalanced bids have been received and all bids rejected. But have not rejected any on basis of materially unbalancing.
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