How to Ensure the Implementation of the Reasonable Minimum Bidding Price Method 《Reprinted》

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In current bidding processes, the bid price is the key factor determining whether a bid will be successful. The final bid price is the price submitted by the bidder, which is derived from the budgeted amount specified in the bid document; it represents a revised version of that budgeted price after taking various factors into consideration. “The “reasonable minimum bid price method” is a method that combines quantitative comprehensive evaluation with the minimum bid price approach. This article begins by exploring the concept and application of the method of a reasonable minimum bid price, and briefly discusses how to ensure the implementation of this method. Concept: The bid evaluation price is a quantitative indicator that represents, in monetary terms, the competitiveness of a bid. In addition to considering the bid price, it also takes into account factors such as quality, project duration, construction organization design, corporate reputation, and past performance; these factors are quantified into monetary values as much as possible, and a weighted calculation is then performed. Therefore, it can be said that the reasonable minimum bid price method is a method that combines quantitative comprehensive evaluation with the minimum bid price method. The quantitative comprehensive evaluation method is suitable for large-scale construction projects or those that are highly technically complex and difficult to construct. Some international organizations believe that the lowest bid price method is appropriate for simple or standardized procurement, while I think the reasonable lowest evaluation price method is suitable for most projects with average technical complexity and low construction difficulties. Article 41 of the Law of the People’s Republic of China on Bidding stipulates that the bid submitted by the winning bidder must meet one of the following conditions: (1) It must be able to satisfy to the greatest extent possible all the comprehensive evaluation criteria specified in the bidding documents ； (2) It is able to meet the substantive requirements of the tender documents, and its evaluated bid price is the lowest, provided that the bid price is not below cost. Regarding condition (1), it can be understood as the commonly used quantitative comprehensive evaluation method (such as the percentage-based evaluation system) for evaluating and selecting bids. That is, when reviewing the bid documents, the evaluation panel conducts a comprehensive assessment based on the various evaluation criteria specified in the tender documents, such as the bidder’s price, quality, timeline, construction organization plan, technical construction solutions, business performance, and social reputation, assigns scores to these aspects, and the bid with the highest total score is selected as the winning bid. Condition (2) can be understood as the evaluation and selection method based on the \"reasonable minimum bid price\", and it has the following implications: (1) It must be able to meet the substantive requirements specified in the tender documents, which is a prerequisite for winning the bid. (2) The bid price that has undergone evaluation is the lowest, which is the core of bid evaluation and selection. (3) The bid price should fall within a reasonable range that is not lower than the supplier’s own costs; this is an international practice aimed at preventing unfair competition, monopolies, and dumping. What are the advantages of the reasonable minimum bid price method? There are many benefits to adopting this method. Firstly, it aligns with the business objective of microentities to maximize profits under a market economy system ； Second, appropriately increase competition in bidding to help project owners save funds and improve economic efficiency ； Third, it helps contractors to continuously improve their management practices, enhance their technical capabilities, strengthen cost accounting, refine their internal operations, boost their market competitiveness, and improve the efficiency of resource allocation ； Fourth, it helps to regulate the order of market competition and reduce project-related **phenomena ； Fifth, aligning with international standards facilitates seizing the opportunities brought about by joining the world trade organization and allows for early preparation to address related challenges. How to use the reasonable minimum bid price method in tendering; the prerequisites for applying the reasonable minimum bid price method. The current pricing model for project costs should be gradually reformed to align with international practices and adopt a market-oriented management approach. Regarding the calculation of unit prices, in international engineering contracting, the general practice is that the owner pays based on the amount of work completed by the contractor. Except for additional payments for provisional items and miscellaneous works priced per man-day and machine shift, all other costs must be included in the payment for the work completed. The General Provisions of the \"Principles for Calculating Construction Quantities (Internationally Accepted)\\" stipulate clearly that, unless otherwise specified, the unit price of a project shall include: (1) labor and related costs ； (2) Materials, goods, and all related expenses ； (3) Provision of mechanical equipment ； (4) Temporary works ； (5) Startup costs, management fees, and profits. Enterprises should develop their own standards based on the quotas issued after the reform of the current cost estimation methods in various provinces and cities; the level of these enterprise-specific quotas should be determined according to the enterprise’s management capabilities and technical expertise. As a corporate quota, it is necessary to take into account both the physical consumption of the project and the consumption associated with the construction methods. The specific designs in the construction drawings determine the components that make up the physical structure of the project; based on these designs, it is possible to calculate the amounts of labor and materials required ； However, there are various options for construction methods, and construction companies should decide based on their own equipment, technology, management level, etc.; this aspect is purely competitive in nature. Only in this way can the advantages of construction companies be fully utilized and project costs reduced. Bidding is carried out using a reasonable minimum bid price method based on a unified bill of quantities and comprehensive unit prices. The bill of quantities is prepared by the entity responsible for setting the base price, based on the construction drawings and in accordance with the rules for calculating quantities. It represents the quantity of work involved in the project to be tendered, and serves as part of the tender documents, provided to all bidders as a basis for determining their bid prices. By maintaining consistency in the calculation of \"quantity of work\", it is possible to prevent bidding firms from having their total bid prices become too high due to errors in the calculation of this quantity, which in turn would lead to estimates of actual profits that are inflated. This approach also avoids the situation where the bidding process ends up serving as a means of assessing the skill levels of the budgeting professionals working for each bidding firm. Let the bidders focus their efforts on selecting construction plans and calculating comprehensive unit prices. This not only reduces the waste of social resources but also **decreases contract disputes related to the volume of work, thereby facilitating the management of construction contracts. If the bidding party has a high level of operational management, advanced equipment, and reasonable construction technical plans, then its final bid price should be the most competitive. This precisely reflects the true purpose and significance of the reasonable minimum bid price method, which is to continuously improve the market competition mechanism based on the principle of survival of the fittest, enhance productivity levels, and promote economic growth and technological progress. Preparation of the base price and determination of the range for a “reasonable price”. The role of the base price is to serve as the owner’s estimate or control standard for the cost of the project under bidding. It shall be prepared in the form of a comprehensive unit price based on the bill of quantities provided in the tender document, reflecting the average social cost. Determining the “reasonable” range for project costs is the key point and difficulty of the reasonable minimum bid price method. To determine what constitutes \"reasonableness\" and to ensure that the winning bid price remains at a level that is appropriate, while still maintaining competitiveness among all bids, the author believes that it is possible to set upper and lower limits based on the specific requirements outlined in the tender documents, using the base price as a reference. If a bid is below the minimum threshold set for the bid price, the evaluation committee should inquire with the bidder; if the bidder can prove that the bid is not lower than their cost price, it remains valid. Since it is very difficult to determine a reasonable range, we need to establish a systematic approach to ensure a minimum reasonable bid price, so as to guarantee that companies bid at a level not lower than their cost. What institutional safeguards are needed to implement the reasonable minimum bid price method? A \"lifelong quality responsibility system\" should be established. Many people believe that if the winning bid price is too low, the winning company, in an effort to minimize losses, tends to cut corners, use substandard materials, work carelessly, fail to follow the technical specifications, and neglect the quality of the work; as a result, it becomes difficult to produce qualified products. After analyzing the situation, we find that ensuring that contractors can make a profit and thus stop cutting corners is actually a form of moral constraint; such constraints are highly flexible. In a market economy, moral constraints often prove ineffective in the face of interests – they may work for some people, but not at all for others. The Regulations on Quality Management of Construction Projects, which came into effect on January 30, 2000, emphasize that all parties involved in construction are responsible for the quality of the projects throughout their reasonable service life. It requires these parties to enhance their awareness of quality and to ensure strict control over project quality during the survey, design, and construction phases, in order to prevent problems before they arise. At the same time, it mandates that the relevant administrative authorities strengthen supervision and inspection of project quality. As long as we take practical action in the aforementioned areas, the quality of construction projects can be ensured. Implement an engineering guarantee system. Some believe that the winning bid price is too low; during construction, insufficient funds make it difficult to proceed with the project, forcing interruptions in work. This leads to either the need for additional investment or the replacement of the construction team. The direct victims are still the project owner and the construction company, suffering severe financial losses as a result. Our country is piloting a project guarantee system, requiring contractors to provide performance bonds to the owner. In the event that the contractor breaches the contract during construction or is unable to complete it for some reason, not due to the owner’s failure to make payments, the guarantee provider will compensate the owner for any losses incurred as a result. The guarantor ensures that funds or other forms of support can be provided to the contractor to enable it to fulfill the contract. The guarantor can also arrange for a new contractor to take over from the original contractor to complete the project. It is also possible, through negotiation, for the owner to hold a new bidding process, with the contractor who wins the bid being responsible for completing the remaining work under the contract. The excess amount resulting from this between the final cost and the original contract price shall be borne by the guarantor ； If the owner is not satisfied with any of the above three solutions, the guarantee provider shall compensate the owner in accordance with the guarantee amount specified in such guarantee. Since the losses of the guaranteeing party will be recovered from the contractor, and the contractor’s reputation will be tarnished as a result, the ultimate victim is the contractor itself. Restrict subcontracting and eliminate sub-subcontracting. Many scholars believe that certain construction companies win bids at low prices and then subcontract the work to other lower-tier companies or individual construction teams, reaping profits from the management fees. The author believes that regarding the issue of subcontracting, it is already reviewed during the bidding process. When the contractor fulfills the contract, under the supervision of the supervision unit, reasonable subcontracting is acceptable; whereas illegal subcontracting will not only be rejected by the supervision unit but also subject to administrative penalties. Control the total volume, implement market access, and protect the reasonable profits of the construction industry. Many scholars believe that the winning bid prices are too low, which is not conducive to the development of construction companies and the industry as a whole. The author believes that under a market economy system, for products where supply exceeds demand, the average industry profit should be lower than the average social profit. We do not want the adoption of a reasonable minimum bidding price method to lead to a race to lower bids, resulting in a decline in profits across the entire industry until losses occur. We need to exercise further macro-level control over the overall productivity of construction enterprises, strive to break down local, departmental, and industry-based protectionism, implement dynamic qualification management for such enterprises, define different operational frameworks for construction firms with varying qualifications, and enhance market access controls through bid guarantee systems in order to protect reasonable profits in the construction industry. Deepen the responsibility system for project sponsors. Many scholars believe that the reasonable minimum bid price method encourages some contractors to adopt a distorted competitive strategy of submitting low bids to win the contract first, and then gradually increasing costs (or focusing on making claims). The responsibility system for the project owner is the foundation for implementing systems such as bidding, construction supervision, contract management, and project risk management. Deepen the responsibility system of the project owner, so that the persons in charge of such entities understand the importance and necessity of implementing the aforementioned system, and learn to operate according to market mechanisms rather than relying on administrative measures ； The association does not manage the project through the client, but by hiring experts from a supervision agency ； The association manages projects based on engineering contracts rather than the will of leaders. Under these circumstances, the contractor’s hopes of increasing costs or making claims can only be dashed. Implementing the reasonable minimum bid price method is a systematic task that requires supporting systems such as the project owner responsibility system, construction supervision, contract management, project risk management (project insurance and performance guarantees), qualification management, and project quality supervision and control.