Bid Margin and Change Order on a Competitive Sprinkler Project
A sprinkler contractor is bidding a 60,000 sq ft distribution center against four competitors. The estimate totals $412,000 in direct cost, with $38,000 in overhead and a target 12% profit. The contractor's estimator used a 1,200 ft main and 9,000 ft of branch line based on the architect's preliminary layout. During the pre-bid walk, the contractor notices the structural drawings show a mezzanine that the architectural drawings omit, which will require an additional 1,400 ft of main and 22 heads. The contractor also learns that the owner intends to award to the low bidder and that the general contractor has a reputation for aggressive back-charges. The contractor is considering bidding low to win and recovering through change orders.
1. Should the contractor bid low and plan to recover through change orders? Analyze the risk.
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Bidding low with the intent to recover through change orders is a high-risk strategy that frequently fails. Change orders require the owner's or GC's approval, and an aggressive GC with a back-charge reputation will dispute the scope, demand documentation, and may offset the change against claimed delays. The mezzanine is a known discrepancy, not an unknown condition, so the contractor cannot rely on a changed-condition argument; the better course is to price the mezzanine work in the bid or to submit a written request for clarification before bid opening. If the contractor bids low and the mezzanine work is later denied as included scope, the margin is gone and the project runs at a loss. The disciplined approach is to quantify the additional 1,400 ft of main and 22 heads, add a contingency for the unresolved discrepancy, and bid a realistic number with a clear written qualification. Winning at a loss is not winning.
2. How should the contractor handle the drawing discrepancy before bid opening?
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The contractor should submit a written request for information or clarification to the architect and GC before the bid deadline, identifying the specific conflict between the architectural and structural drawings and asking which governs. The request should state the contractor's assumption - for example, that the mezzanine will be sprinklered and that the additional main and heads are included - and ask for confirmation. If no answer is received, the contractor should include a written qualification in the bid stating the basis of the estimate and excluding the mezzanine work unless added by change order. This protects the contractor contractually and gives the owner notice. Documenting the discrepancy also creates a record if the issue is disputed later. Silence before bid opening is what turns a known discrepancy into an unrecoverable loss.
3. What estimating and contract terms should the contractor insist on given the GC's reputation?
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The contractor should insist on a clear scope of work with drawings and specifications incorporated by reference, a defined schedule and liquidated damages provision, and a change order procedure that requires written authorization before work proceeds. Payment terms should include progress payments tied to approved billing, retainage limits, and prompt-payment language. The contractor should also negotiate a back-charge procedure that requires written notice and an opportunity to cure before any deduction, and should limit consequential damages. A contingency line in the estimate - typically a few percent for unresolved design issues - is prudent. Finally, the contractor should verify the GC's payment bond and the owner's financing before mobilizing, because an aggressive GC with weak payment practices is a collection risk as much as a scope risk.