Cost estimation using the bill of quantities in FIDIC contracts and techniques for unbalanced bidding

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An unbalanced quotation takes advantage of the fact that under FIDIC contracts, the bidding is conducted on a \"unit price basis\", while implementation follows a \"remeasurement contract\" approach. While keeping the total price unchanged, some of the unit prices in the B.Q. order were adjusted to be slightly higher than normal, while others were adjusted to be slightly lower than normal. Contractors can take advantage of the process of quantifying work and materials to achieve \"earlier and greater payments,\" thereby striving to obtain the best possible economic benefits. Why collect money early? As an experienced contractor, once a project starts, apart from the advance payment, efforts are made to receive payment in advance for each individual task completed. The trick is, when submitting a quote, to increase the unit price for the work that has been completed earlier in the B.Q. order (such as startup costs, temporary facilities, earthwork, foundations, and structural elements), and to decrease the unit price for the work that is completed later (such as road surfacing, traffic signs, roof finishing, site cleanup, and miscellaneous ancillary works). Although the unit price for later stages might result in losses, since the costs have already been recovered earlier on, the issue of capital turnover has been properly resolved, financial resilience has improved, and there is also a certain amount of interest income; therefore, as long as the overall project remains profitable in the end, that is sufficient. This revenue and expenditure curve is known overseas as the “Front Loading” approach, and its core principle is to strive for minimal negative cash usage in internal management. It is not just a matter of balancing and alleviating the financial pressure on contractors; it also involves the aspects of handling claims and mitigating risks. If the contractor is always in such a \"surplus\" situation, with income exceeding expenses, then according to FIDIC Clause 65, Clause 66, and Clause 69, in the event of breach by the other party or force majeure, the initiative lies with the contractor: it can send a letter to the consulting engineer or the owner at any time to request that performance be halted or the contract be terminated. At the same time, if the project site is managed better, profits can be increased further. When the contractors’ on-site staff have comfortable conditions for rest and living, it is also beneficial for future construction, thus creating a positive cycle. This is the standard practice internationally; the owner can accept it and will not consider the contractor to be making unreasonable demands. It should also be noted that this imbalance in unit prices must be kept within an appropriate range and cannot be adjusted arbitrarily. When many unit prices in a B.Q. bid deviate by multiples from the moderate market price, it may be rejected by the owner, and the bidder might even be placed on a blacklist preventing them from bidding in the future. For example, it is impossible to collect 5 million yuan from the client right away for a project worth 10 million yuan, just shortly after work begins and once the camp facilities have been completed. It should be noted that adjustments should be made within a reasonable range; generally, an additional 20-30% is considered a reasonable amount, which the other party can usually accept. The contractor can explain this as being necessary for purchasing equipment and placing orders in advance. If the unbalanced allocation of proportions is too extreme, resulting in obviously unreasonable unit prices for the initial work tasks, the owner may require the contractor to provide a unit price analysis and the basis for such calculations, which could backfire on the contractor. “\"Earning more money\" is achieved by adjusting relevant unit prices in accordance with the fluctuations in the volume of work for a project; this approach is referred to overseas as Active Cost Driver Apportionment. There is always some difference between the quantity of work indicated in Bid B.Q. form and that calculated by the consulting engineer, and the actual quantity carried out during construction; sometimes this difference can be quite large. Moreover, the unit prices in the table are left blank to be filled in. It can be seen that the quantity of work and the unit price of the contract are in a functional relationship with each other. The actual income of the contractor is not directly related to the quantity of work specified in the B.Q. order; one reason for this is that, whether or not the consulting engineer issues a change order, the amount to be paid for the work is determined based on the volume of work completed under the supervision of the consulting engineer on site and through on-site measurements. The contractor’s income is thus equal to the unit price stated in the B.Q. order multiplied by the actual quantity of work completed. On the other hand, since consulting engineers cannot estimate the quantity of work with absolute accuracy when preparing B.Q. sheets based on the contract drawings, and various errors are even inevitable, the quantity of work carried out by the contractor will certainly not be identical to that figure. If, during the bidding process, the contractor determines that the quantity of work specified in the bid is clearly unreasonable, this represents an opportunity for profit. For example, if the contractor’s unit price is set at 100 yuan/m3, and there is absolute certainty that the volume of work specified in the bid, which is 10,000 m3, is incorrect and should actually be 15,000 m3, then it is possible to quote a higher unit price in the B.Q. form, for instance, 130 yuan/m3. When submitting the quote, the contractor included in the contract amount a figure of 130 yuan/m3 × 10,000 m3, whereas the actual volume worked on was 130 yuan/m3 × 15,000 m3; this allows them to earn more money per cubic meter compared to the original rate of 100 yuan/m3. If it is believed that the quantity of work specified in the bid is higher than the actual amount required, and that it’s impossible to complete that volume of work in practice, then it is possible to quote a lower unit price. It seems like there is a loss when bidding in this way, but since not that much work is actually completed, the contractor will only suffer a small loss. The key to bidding prices lies in decision-making, and before making a decision it is necessary to conduct thorough analysis and justification in order to avoid ambiguity, arbitrariness, and recklessness in decision-making, and to ensure consistency and seriousness in its implementation. At the same time, the competence of the contractors’ pricing staff is very important; they should learn how to analyze and make judgments. Determining whether an analysis is correct depends on thorough research of the project, access to extensive information and accurate data, as well as the accumulation of experience; of course, the skills and determination of the person making the final decision are also essential. The end result should be that the higher and lower amounts cancel each other out when quoting, but it is not apparent in the total price ； When the quantity produced during fulfillment is low, less work is completed; by lowering the unit price, losses are minimized ； With a large quantity and many tasks completed, an increase in the unit price allows contractors to earn higher profits. High profits and low losses mean overall profitability. Of course, submitting an unbalanced quote also carries risks, depending on whether the contractor’s judgment and decisions are accurate. Even if the judgment is correct, the owner can find ways to reduce the amount of work required during construction by issuing change orders, or even force changes to or the cancellation of the original design. This requires the contractor to have certain operational experience and skills; decisions must be made after thorough research and analysis of the specific circumstances, in order to create sufficient flexibility to accommodate the owner’s requirements. In short, for contractors, economic benefits come first; the main goal of a business is to generate profits, and it is therefore very important to master current bidding strategies and pricing techniques.