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How project owners can overcome winning bids through \"unbalanced bidding\" Source: Project Management Resources Network Abstract: Unbalanced bidding is one of the common bidding techniques and strategies used by bidders. With the upcoming implementation of the new specifications for valuation based on bill of quantities, bidders will use this technique and strategy in an even more pronounced and concealed manner. Unbalanced bidding is one of the main risks that project owners need to guard against during the project bidding process. In situations where it is difficult to completely avoid this, this article offers some tentative explorations on how project owners can prevent winning bids through unbalanced pricing and reduce the risks associated with such bids. Keywords: engineering bidding ； Overcome uneven bidding prices ； 1. Introduction After the adoption of the tendering system based on quantity lists and the practice of awarding contracts to the lowest bidder, the owner bears the risk related to the quantities involved ； The contractor bears the risk of price. To obtain excess profits, bidders often use the settlement principle of \"increasing quantity while keeping price unchanged\" to submit unbalanced bids. For the contractor, as long as income exceeds expenses, in the event of the other party’s breach of contract or unforeseen factors, the contractor holds the upper hand and can submit unreasonable claims to the project owner at any time, or even demand that performance be halted or the contract terminated, thereby posing significant risks to the project owner’s efforts to carry out the project. 2. Definition of unbalanced bidding and practices of bidders 2.1 Definition of unbalanced bidding Unbalanced bidding refers to the practice whereby bidders, while keeping the total project cost essentially unchanged, make use of the sequence in which payments are made for various items listed in the bill of quantities, as well as any changes that may occur during the implementation of the project. They deliberately adjust the prices of certain sub-items within the bill of quantities within a certain range, with the aim of neither increasing the total cost nor affecting their chances of winning the bid, while still achieving more favorable financial results at the time of settlement. Since the comprehensive unit price for each sub-item in the bill of quantities includes management fees and profits (the amount of management fees depends on the operating conditions of the bidder’s company and the management level of the project team, while the profit amount is related to the bidder’s bidding strategy), this creates more opportunities for construction companies to use the strategy of uneven pricing. 2.2 Practices of Unbalanced Quoting by Bidding Parties Unbalanced quoting refers to the practice of making appropriate adjustments to the prices of various components of a project, while keeping the total cost unchanged, in order to maximize profits. The specific methods are as follows: (1) For those items for which payment can be received earlier, such as startup costs, earthwork, and foundations, their unit prices can be set higher, thereby facilitating better cash flow. The unit prices for subsequent project tasks, such as plastering, painting, and electrical work, can be appropriately reduced. blog.mypm.net (2) For projects where the volume of work is expected to increase in the future, the unit price can be raised slightly ； Conversely, the unit price of projects for which the estimated workload is expected to decrease can be reduced slightly. (3) The drawings are unclear or contain errors; modifications are likely to be made in the future ； Or if the details of the work are not clear, the price can be reduced, with the price increased later when making a claim. (4) The daily wage rate and the hourly rate for occasional use of construction machinery may be set slightly higher than the corresponding rates included in the project cost. Since these unit prices are not included in the bid price, they are calculated based on actual costs when incurred, allowing for potential additional profits. (5) For items without a quantity specified but only a unit price given, such as the reserve unit prices for digging soft soil or rock in civil engineering, the unit price should be set relatively high. In this way, it does not affect the total bid price, and more profits can be obtained in the future when such construction projects arise. Project Managers Alliance (6) For projects or amounts that are provisional, the estimate can be set higher if it is anticipated that work will be carried out in the future; otherwise, the price can be set lower. (7) When submitting a \"Quotation Analysis Table for List Items\" for projects with large volumes of work, labor costs and machinery costs are quoted at high levels, while material costs are quoted at low levels, as material costs are easier to adjust. 3. Pre-bidding strategies for engineering projects are key to overcoming unbalanced bidding prices. 3.1 Requirements for design drawings: Improve the depth and quality of the design drawings used in bidding. The tender drawings serve as an important basis for the tenderer to prepare the bill of quantities and for bidders to submit their quotes. At present, for most projects, the design drawings available at the time of bidding do not meet the construction requirements, and numerous additional designs and design changes arise during the construction process, resulting in a significant discrepancy between the quantity list specified in the bid and the actual amount of work carried out. Although the bill of quantities pricing method generally employs fixed comprehensive unit prices with quantities measured on a real-time basis, it also provides bidders with the opportunity to submit unbalanced quotes. Therefore, the client should carefully examine the design depth and quality of the drawings, avoiding the practice of designing while simultaneously issuing tenders; instead, tendering should be carried out using the construction drawings to minimize changes to the project from the outset. 3.2 Requirements for the bill of quantities provided by cost consulting firms Improve the quality of bill of quantities preparation by these firms, in order to prevent the possibility of unbalanced pricing. The client should pay attention to the quality of preparing the bill of quantities, and eliminate the mindset that views it merely as a reference with actual costs determining the final settlement. Instead, the bill of quantities should be used as an important basis for submitting bids and for final settlement, as the core element in controlling project costs, and as a key tool to prevent unbalanced bidding. Unbalanced quotes usually take advantage of errors such as omissions and calculation mistakes in the bill of quantities; therefore, it is necessary to assign experienced cost engineers to handle this task. The preparation of the bill of quantities should be as comprehensive, detailed, and predictable as possible. Meanwhile, its preparation must comply strictly with the \"Code for Quantitative Calculation of Construction Projects\" GB50500-2008; accurate quantities are required to avoid errors or omissions, and to prevent bidders from using potential variations in the quantities listed in the bill of quantities to submit unbalanced quotes. The characteristics of each project must be described clearly, comprehensively, and accurately, detailing the work that bidders need to carry out. This enables bidders to take into account all the costs associated with completing the listed tasks, thereby avoiding misunderstandings resulting from unclear descriptions, which could lead to unnecessary errors in the bidding prices and affect the quality of the bidding process. 3.3 Restrictions on unbalanced bidding amounts in the tender documents 3.3.1 Prohibiting bids with unbalanced amounts from winning the bid. The tender documents can specify penalty measures for various types of inconsistent pricing; for example, if the degree of inconsistency in the comprehensive unit price of a particular item exceeds a certain threshold (this threshold is determined based on the specific project, generally not exceeding 10%, while 15% is acceptable in international projects), such bid will be dismissed. 3.3.2 Control the prices of key materials. The tenderer needs to be aware of the prices of the main materials used in the project. In the tender documents, for special bulk materials, an appropriate provisional price can be provided (as a **guideline** for bidding), and the methods for adjusting the amounts related to these provisional prices should be specified in the tender documents. In cases where a fixed-price bidding method is used, the bidding documents shall specify that various materials whose cost accounts for 2% or less (including 2%) of the cost per unit of work are considered non-major materials ； Material costs account for 2% to 10% of the cost of a single construction project; all types of materials that make up 10% or more of this amount are considered the primary materials ； Materials whose cost accounts for more than 10% of the cost of a single construction project are considered major materials. During the construction period, the prices of non-key materials are not allowed to change. For category 1 materials, the price variation shall remain within ±10%; the contractor is responsible for any price differences within this range. Any variation exceeding ±10% (including ±10%) is the responsibility of the employer ； For Category II materials, if the price variation is within ±5%, the difference in price shall be borne by the contractor; for variations exceeding ±5% (including ±5%), it shall be borne by the employer. 3.3.3 Improve the key terms of the construction contract. In the tender documents, the special clauses in the contract template should be specified and included therein; the terminology used in these special clauses must be standardized, the concepts accurate, and the qualitative and quantitative descriptions precise. Foster the awareness that all actions in project management are based fundamentally on the contract, and strengthen the central role of project contracts in management. As part of the contract, the bill of quantities serves as the basis for measuring the volume of work and making payments, and it must be accompanying the contract. Changes in the quotation based on the bill of quantities must be adjusted by the contract. The tender documents specify that the comprehensive unit price is generally not adjusted during settlement. In the specific provisions, it is specified that when the actual amount of work carried out differs from that listed in the schedule, and if the change in the quantity of a particular item of work exceeds 15%, and if the cost associated with that item exceeds 1% of the price indicated in the schedule for that item, then the contractor shall propose a comprehensive unit price for the increased or decreased amount of work. The comprehensive unit price for that item must be recalculated, and the appropriate method for such recalculation shall be specified. Once approved by the employer, this price will serve as the basis for final settlement, thereby preventing any unfair additional payments that might arise between the two parties. The tender documents specify that the quotes for the measure items within the scope of the tender are fixed and will not be adjusted upon final settlement. 4. The bidding and evaluation process for engineering projects is key to overcoming unbalanced pricing. At present, different evaluation methods are used depending on the characteristics of each project; these include the lowest evaluated bid method, comprehensive assessment method, and comprehensive scoring method. Regardless of the method used, evaluators must thoroughly understand the principle of awarding contracts to the lowest bidder, and be vigilant against hidden forms of unbalanced pricing by contractors. That is, when reviewing the bids submitted by contractors, it is necessary to consider not only the total price but also the unit price for each item, as a low overall cost does not necessarily mean that the price per item is the lowest. Projects with high unit prices for individual work items, large volumes of work, high unit prices for key materials, and a high likelihood of changes to those items require careful evaluation. 4.1 Compliance Review Before conducting a detailed evaluation of the bids, the bid evaluation committee will first determine whether each bid document meets the requirements specified in the tender documents in a substantive manner. A bid document that effectively meets the requirements should be in compliance with all the stipulated requirements, conditions, terms, and specifications in the tender documents, without any significant discrepancies or reservations ； Bids that do not essentially meet the requirements specified in the tender documents will be rejected by the tendering authority, without undergoing a detailed evaluation. 4.2 Review of the total project cost The review of the total cost is based on the benchmark price for bid evaluation (the average calculated from the quotes of valid bidders), which represents the average advanced level in society; it is not determined based on the average social level (the base price). To keep the benchmark price at this average advanced level and to encourage bidders to leverage their strengths and enhance their overall competitiveness, a reasonable range with some flexibility can be established. For example, this range can be expressed using a floating coefficient of ±5%. The value within this range should be determined after the bidding deadline but before the bid opening, taking into account the characteristics of the project and market prices. It is essential that the bids falling within this range are competitive, and this range can be adjusted as needed depending on the evaluation criteria and indicators. The determination of the reasonable floating range here should aim to keep the winning bid price low to an appropriate extent, while simultaneously ensuring the \"competitiveness\" of all bid prices. 4.3 Evaluation of the comprehensive unit prices for individual construction tasks In practice, evaluating all comprehensive unit prices would involve too much work. Therefore, it is advisable to focus the evaluation on those construction tasks that involve large volumes of work, have high values, and are prone to changes during construction. The number of tasks to be evaluated should be no less than 20% of the total number of items listed in the construction task schedule, with a minimum of 10 tasks. The number of tasks to be evaluated should be determined based on the approximate proportion each task contributes to the total cost. For specialized tasks that are contracted separately, different criteria can be applied. The specific method for evaluation is as follows: The average comprehensive unit price submitted by the valid bidders for a particular task is reduced by 5% to serve as the benchmark price for evaluation; those prices that exceed this benchmark by 10% are considered candidates for closer evaluation. When it exceeds the evaluation benchmark price by 10%, the comprehensive unit price for that particular item submitted by the bidder is deemed unreasonable, and it is counted as 1 item. By evaluating the comprehensive unit prices of the items drawn from all bidders, the number P of items for which each bidder’s comprehensive unit price is outside the reasonable range is determined. If P is greater than 10% of the total number of items and exceeds 5 items, then that bidder’s bid is considered unreasonable, and they cannot be considered as a candidate for winning the bid (specific procedures vary depending on the individual project). 4.4 Evaluation of prices for major materials and equipment Generally, those materials and equipment specified in the tender documents that are used in large quantities and have a significant impact on the bid prices are given priority in the evaluation process. The number of such items to be evaluated should be at least 50% of the total number of materials and equipment listed, or all of them if the number is small. Its determination method is basically the same as the principles, methods, and steps used for evaluating the comprehensive unit price. 4.5 Evaluation of measures item costs All the measures item costs listed in the tender documents are evaluated as a whole, without selecting any individual items separately. The method used is to set the evaluation base price as 5% lower than the average value of the measures item costs of the valid bidding entities. When the cost for measure items of a valid bidder exceeds 10% of the evaluation benchmark price, it is determined that the bidder’s cost for measure items is unreasonable. If the bidder’s cost for measure items is not within a reasonable range, then the bidder’s bid is considered unreasonable, and the bidder cannot be considered a candidate for winning the bid. 5. Conclusion Unbalanced bidding is one of the main risks that project owners need to guard against during the bidding process for engineering projects. Given that it is difficult to completely avoid such situations, project owners can prevent unfair bidding and reduce the risks associated with it. Determining the reasonable range for comprehensive unit prices and identifying unbalanced bids by controlling their price ranges is more concise, practical, and efficient. At the same time, unbalanced bidding can also help avoid potential risks by improving the depth and quality of the design drawings provided in the tender documents, enhancing the quality of the quantity lists, preventing bids with unbalanced pricing from being accepted, and refining the contract terms. References: 1. Practical Cases of Bidding in Construction Projects: Preparation of Bill of Quantities and Tender Documents, compiled by the Expert Advisory Committee of Beijing Guanglianda Huizhong Software Technology Co., Ltd., Beijing, China Building Materials Industry Press. 2. Guiding Document on the Determination and Adjustment of Contract Prices under Bill of Quantities Pricing, Su Jian Jia (2005) No. 593, document issued by the Jiangsu Provincial Department of Construction. 3. Zhang Yunming. Preparation of Bill of Quantities and Bid Quoting, Beijing, China Building Materials Industry Press, 2003.