A Legitimate Alternative for Unbalanced Bidding in Unit Price Contracts

Abstract

Unit-price contracts are common in public construction projects. Such contracts expose contractors to economic risks due to deviations between owner-estimated quantities and actual quantities of work. Contractors typically respond to such risks by submitting unbalanced bids that are opposed by owners and may lead to the rejection of the submitted bid. This paper presents the development of a legitimate alternative for unbalanced bids and proposes a bid adjustment procedure that can be used by bidders to adjust item rates before submitting the bid based on the envisioned quantities of work. The procedure can be used whether the bidding documents include a changed quantity clause or not and takes into consideration the terms of the changed quantity clause if such a clause exists in the bidding documents. The procedure protects the contractor from financial losses when the project experiences an underrun in quantities. Likewise, the procedure improves the competitiveness of the contractor when the project is expected to experience an overrun in quantities. The procedure is expected to help contractors submit a responsive and balanced bid and eliminate the need to submit an unbalanced bid. An illustrative example is analyzed to show the use of the procedure and its effectiveness in improving the profitability of the contract.