Examining Pre-Award Analysis: To Award or Not To Award?

Most agencies receive bid data either monthly or sometimes more often. Agencies then have to determine to award or not award contract bids. In many cases, the agency only evaluates the bids based on low bid price. Ideally, the agency should conduct a pre-award analysis to evaluate other factors that reflect the true level of competition in the bidding process.

There are several factors to evaluate to make a good recommendation to award or not award contract bids as described below.

• Did the logical vendors bid?
• Did vendors obtain bid documents but did not bid?
• Are bid item prices consistent with past vendor bids?
• Are there any apparent “unbalanced” item bid prices?
• Are there any “complimentary” or “sham bids” provided by losing vendors?
• Are there any affiliated vendors bidding on the contract?

The above questions will be detailed below.

Did the logical vendors bid?

Hopefully, your agency has a database of past bids and identifies the contract work type. If so, you can evaluate the bids received for a work type and area. An agency should evaluate this data to determine if past vendors bidding this type of work in the contract area are bidding. If not, you should try to evaluate why this may be. In some cases, vendors may have recently received a lot of contracts and do not have the capacity to take on more work. Refusing to bid contracts may also be due to collusive agreements with other vendors to not bid. Logical vendors not bidding should be evaluated.

It is recommended practice for an agency to contact logical vendors that not bid and ask the question why? This can be done in a nonconformal manner by asking the vendor if the agency could package the contract differently that would have enticed the vendor to bid? This possibly may provide more insight on the situation. It also lets vendors know that bids are being evaluated.

Did vendors obtain bid documents but did not bid?

Again, hopefully your agency has a database of vendors that pulled bidding documents but did not bid. This data should be evaluated. As in the above, refusing to bid contracts may also be due to collusive agreements with other vendors to not bid. As mentioned above, it is recommended that an agency question vendor for reasons it decided not to bid.

Are bid item prices consistent with past vendor bids?

Like the above, and for all the other issues to evaluate, you need a database of historical bidding data to analyze trends in bidding and costs. Vendors' item bid prices should be evaluated for consistency with past bids. Are the vendors prices different when it wins versus loses? Inconsistent bid prices are always a “red flag” for me in doing analysis. Vendors always bid differently for a reason. Sometimes the reason is to intentionally lose the bid and/or to honor a collusive agreement with other vendors. Other reasons may be due to different conditions on the contract that did not exist with other contracts. Evaluating if the agencies’ Engineers Estimate (EE) is also different is helpful in the analysis.

Are there any apparent “unbalanced” item bid prices?

Unbalanced bids occur when a vendor prices an item(s) low and shifts prices to other items. This unbalancing does not affect the vendor’s total price, but often is detrimental to agency, particularly when the unbalancing is front-end loaded on lump sum items that will be paid early in the contract. This is detrimental to the agency because it will pay out contract dollars earlier than anticipated and possibly will disrupt cash flow projections and would put the agency at risk if there is a default on the contract.

Bids may be unbalanced for two main reasons:

• A vendor simply wants to get the contract dollars early in the contract (front-end loading)
• A vendor believes an item quantity is incorrect and shifts dollars to another item (which may be a lump sum item or an item where it can maximize profits on)

In the old days, this was easier to spot because in most cases vendors simply moved dollars between two items. In today’s era of computers, vendors can make this more difficult to recognize because it can easily distribute unbalanced prices over many items. The best defense against unbalanced bidding is for an agency to know what item prices should be by producing consistent, reliable cost estimates. The best way is if an agency bases its estimates on cost-base methods at least for the major cost items on the contract.

Another cause of unbalanced price may be due to a decimal error in the vendor’s unit price. While this does not change the unbalancing, it should be considered in the analyses of unbalanced bids.

It is recommended that an agency question vendor on suspected unbalanced bids. Without a doubt the vendors will provide some explanations (that may or may not be valid) but the effect is vendors know that the agency is evaluating bids. I personally seen when this was done by an agency that the news quickly spread throughout the vendor community, and as a result we observed many less suspected unbalanced bids.

If your agency is a Department of Transportation (DOT), the Federal Highway Administration (FHWA) has guidelines of evaluating unbalanced bids (“Bid Analysis and Unbalanced Bids – May 16, 1988”).

Are there any “complimentary” or “sham bids” provided by losing vendors?

A “complimentary” or “sham” bid is a bid provided by a vendor to intentionally lose a contract. These often occur by vendors honoring a collusive agreement with other vendors. This analysis is closely aligned with the above topic “Are bid item prices consistent with past vendor bids?”

You should evaluate these vendors' occurrences with other winning vendors to see if patterns exist with the historical data.

If a vendor is pressed by the agency on such bids, it may often hear the explanation that it was just throwing in a bid on the off chance that it won. I am skeptical of such explanations, because it costs a vendor significant amount of time and money to draw plans and prepare a proposal.

As mentioned in the above sections, it is recommended that an agency question the vendors about such bids.

Are there any affiliated vendors bidding on the contract?

Affiliated must be identified for a proper analysis. Common forms of affiliated vendors are:

• Vendors that are subsidiaries of other firms
• Vendors that share officers with other firms
• Vendors with the same address of another firm
• Vendors that have the same phone number or fax number with another firm
• Vendors that have an e-mail address tied to the same construction firm

Many agencies have specifications that specifically state affiliates cannot bid on the same contract. In many cases, this requirement prevents this activity. However, if an agency is not tracking affiliated vendors closely, sometimes vendors will cheat to make it appear that there is more competition on a contract.

Even if your agency does not have the above specification, it is important to recognize when affiliates bid on the same contract. This is important because affiliates bidding on the same contract are not really competitors. So, instead of actually receiving say four bids, you may possibly only have three or less viable bids.

Create a Pre-Award analysis report after each letting

It is recommended that an agency create a Pre-Award analysis report as soon as possible after bids are received and presented to the agency’s management before it makes recommendations to award or not.

The report should include analysis of the above-mentioned topics. To supplement the reports, you may want to include things scatter plots of prices, maps, etc. I recommend doing this for all contracts. In some cases, you may find no reasons for alarm, but this type of reporting gives an agency creditably that it is not “painting everything black.”

End Notes

As mentioned many times in the above, an agency needs a historical database to properly do pre-award analysis.

If your agency is a DOT agency that licenses AASHTOWare Project software products, you have this data for the analysis. Even if your agency does not license AASHTOWare Project software products, hopefully you have a database that allows such analysis.

Regardless, if you need help with such an analysis, contact us at: dataservices@infotechinc.com.

Infotech has provided agencies analysis services for more than 40 years.