What is an "unbalanced bid" and how should one be treated? I last wrote a column on "unbalanced bids" in February 1987, and contractors continue to face the possibility of having their bids thrown out for being unbalanced. This column is aimed at providing legal arguments for those contractors.
The rationale for the government’s interest in unbalanced bids is best shown in Perini Corporation v. U.S., 381 F.2d 403 (Ct.Cl. 1967). In that case, the estimate for pumping units of 1000 gal of water overran by 150% of estimated quantities. Perini’s unit price for pumping was probably unbalanced and greatly exceeded its competitors so that it received a substantial "windfall" from the overrun. As a result, the government sought relief under the "Changed Conditions" clause in the contract. The Court of Claims declined to grant the requested relief on the grounds that it never had been the purpose of that clause to protect a party from the results of its own miscalculations. In Perini, an unbalanced bid worked to the detriment of the government.
If a state DOT seeks to throw out a bid, what kind of argument can the low bidder make?
I suggest that it begin with the argument that the mathematically unbalanced bid is not materially unbalanced. If that fails, I suggest that the contractor turn to the competitive bidding statute.
There is no generally accepted definition of an "unbalanced" bid. In Dept. of Labor v. Boston Water & Sewer Comm’n, 469 N.E.2d 64 (Mass. 1984), the case discussed in the 1987 column, the Department of Labor had determined a penny unit price per square foot of temporary sheeting was not unbalanced because the contractor had not inflated any other unit price. The Comptroller General of the United States has had numerous occasions to consider unbalanced bids. Instead of using the phrase "to the potential detriment of the [Division]," the Comptroller General stated: "A bid is not materially unbalanced unless there is reasonable doubt that award to the bidder submitting a mathematically unbalanced bid will not result in the lowest ultimate cost to the government."
In a variety of different cases, the Comptroller General has made it clear that the question to be determined is whether the bid will likely result in the lowest price to the government. Part of that analysis includes a determination of whether the estimated quantities in the bid documents are reasonably accurate. The Comptroller stated that, in analyzing whether a mathematically unbalanced bid is material, the focus should be on the estimated quantities.
We believe that, as a general rule, the inquiry into material unbalancing begins with an examination of the solicitation and its evaluation formula. The determination that a mathematically unbalanced bid has been submitted has the effect of calling into question the accuracy of the solicitation’s estimate of the anticipated quantity of work and, thus, the evaluation basis upon which bids or offers are being considered for award. If, after examination, the contracting agency believes that the solicitation’s estimate is a reasonably accurate representation of actual anticipated needs, then the mathematically unbalanced low bid may be accepted.
Justice for all
The central object of state competitive bidding statutes is to obtain a full and fair return for the expenditure of public funds by awarding contracts on an open and equal basis to all persons who are able and willing to perform the work. Through competitive bidding, the public has its best assurance that a real and honest cost basis for the work will emerge. In addition, the concept of competitive bidding prevents favoritism in the spending of public funds, provides objective criteria so that all bidders know the "rules of the game" and stimulates competition in the entire highway construction industry.
For competitive bidding to achieve those objectives, criteria for evaluating bids must be sufficiently definite and free from ambiguity so that the bidders can compete on a common and equal basis. An invalid ambiguity exists if the specifications are susceptible to more than one reasonable interpretation.
Most state DOT standard specifications include a specific section on the evaluation of bids. Most of the criteria in those sections provide clear and definite standards to be applied in evaluating bids. However, when it comes to unbalanced bids, many standard specifications are indefinite and provide absolutely no standard for evaluating bids. The only purported standard is the perceived "significance" of an unbalanced bid and the perceived "potential detriment to the DOT" by an unbalanced bid. There is typically no definition of "unbalanced," "significantly" or "potential detriment." All interpretations and applications of such a provision must be done on a subjective, project-by-project basis. That subjectivity defeats the very purpose of the competitive bidding statutes.
How does your state DOT evaluate unbalanced bids?