What is Unbalanced Bidding and how to overcome it.

Tashmika Haridass
22nd Jun, 2023

Unbalanced bidding can be defined as the manipulation of certain line item bid prices by bidders to gain an advantage in the bidding process. There are two types of unbalanced bidding namely mathematically unbalanced bids and materially unbalanced bids. A mathematically unbalanced bid can be defined as a bid in which each bid item fails to cater sufficiently for the overhead and profit as well as the necessary costs of the item. A materially unbalanced bid occurs if there is satisfactory doubt that the award to the bidder submitting the mathematically unbalanced bid will result in the lowest ultimate cost to the Client.

The most common example of a mathematically unbalanced bid is known as the loading of rates. In this case, the bidder raises the unit rates on certain items in the bills of quantities, usually on items that are programmed earlier than others, and reduces the unit rates on the remaining works so that the bid price remains ‘market related’. The loading of rates is usually done for the following reasons:

To ensure cash flow at the beginning of the contract thereby reducing the need to borrow money to complete the project.
To increase profits or reduce contractor risk.
To conceal exact pricing from competitors.
Bidders have reason to believe that the quantities provided in the bills of quantities are underestimated.

An unbalanced bid price is risky for both the Contractor and Client. It may be risky for the Client as if the Contractor raised the price of an item and the quantity of the item increased during construction, the Client will pay significantly more than required. In the same manner, it may also be risky for the Contractor as if the Contractor lowered the unit price of an item and the quantity increased during construction, the contractor has a responsibility to undertake the additional work for the unit rate quoted. Further, the incentive for the Contractor to complete the contract with an unbalanced bid price is substantially reduced as the payments received in the latter phases of the contract may be smaller than the actual costs. To avoid the risk to the Client and Contractor, it is best practice for bidders to follow a balanced way of distributing all indirect costs and markup.

For the bidders who fail to follow best practice, it is the quantity surveyor’s responsibility to ensure that a financial adjudication is undertaken on all bid submissions. During the financial adjudication, the quantity surveyor would be able to determine if there are unbalanced unit rates included by considering the following:

Are the unit rate bid prices in reasonable conformance with the quantity surveyor’s estimate and other bids submitted?
If awarded, what effect will the unbalanced bid items have on the overall contract sum?
Should quantities be incorrect, will the contract sum be increased when the quantities are corrected?
In the case where quantities may vary, will the lowest bidder still remain the lowest the bidder?
If an unbalanced bid is awarded, will the unbalance have a detrimental effect on the competitive process or cause contract administration issues?

Once noted, the quantity surveyor should inform the Client of all bidders who have unbalanced rates included in their submissions and the quantity surveyor and Client should agree on one of the following options to proceed with the tender adjudication:

Option 1 - Provide the low bidder an opportunity to rebalance their bid.
Option 2 - Rejection of all bids found to be unbalanced and award to the next bidder.
Option 3 - Rejection of all bids and re-procurement of the project.

If selecting Option 1, the low bidder, whose bills of quantities included unbalanced rates should be notified by the quantity surveyor or the Client depending on the Procurement strategy of the project. The bidder may elect to re-balancing of the unbalanced rates or provide a justification for such. The bidder would be requested to adjust the unbalanced rates by either increasing or decreasing them taking into account that the form of offer may not be amended. Should the bidder opt not to adjust the unbalanced rates, the bidder shall be requested to prove; to the satisfaction of the Client/ quantity surveyor how the bidder intends to perform the work as per the quoted rates. Should the justification of the bidder be acceptable, the tender adjudication can proceed. Should the justification not be acceptable, the bid may be rejected or a higher security may be requested to mitigate any potential risks.

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