Unit Price Bid That Turns Unprofitable
You are bidding a municipal water line replacement as the low bidder on a unit-price contract. The bid schedule lists 4,200 linear feet of 8-inch PVC at $46/LF, 900 LF of 12-inch ductile iron at $112/LF, and 1,800 cubic yards of rock excavation at $85/CY. Your estimator built the rock quantity from the engineer's geotechnical report, which described "possible weathered rock" in two borings. During the pre-bid site visit you noticed exposed limestone ledges along the trench alignment that the borings did not capture. Your bid is due in five days, and you are $180,000 under the next bidder on the apparent low total. The contract is unit price with a 10% quantity variation clause and no geotechnical baseline.
1. Analyze the risk in this bid structure and explain how the unit-price and quantity-variation provisions affect your exposure.
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In a unit-price contract you are paid for actual quantities installed, not the estimated quantities-so the danger is not that you lose money on the unit rate, it is that the actual quantity of the expensive item (rock excavation) exceeds the estimate while the cheap items come in under. The 10% variation clause typically lets the owner adjust quantities within ±10% without renegotiating the unit price; outside that band, either party may seek a rate adjustment. If actual rock is 2,700 CY instead of 1,800 CY (a 50% overrun), you are still paid $85/CY for the extra 900 CY-which is fine only if $85/CY actually covers your cost. If your $85 rate was built on an optimistic production assumption (say 300 CY/day) and the exposed ledges force 150 CY/day, your true cost may be $110/CY and you lose $22,500 on the overrun alone. Conversely, if rock comes in at 1,200 CY, you lose the margin you booked on 600 CY you never installed.
The absence of a geotechnical baseline is the bigger problem: without a baseline, you bear the risk of differing site conditions unless you can show the conditions differ materially from those indicated in the contract documents. Exposed ledges visible at the site visit may be treated as a condition you should have discovered-courts and boards often hold that a bidder who sees a condition during the site visit cannot later claim it as a differing site condition.
2. What bid strategy and pre-award actions would you recommend, and what would you do if the owner refuses to adjust?
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Bid strategy. Do not bid the rock at the engineer's 1,800 CY as if it were a certainty. Two defensible approaches:
- Price the risk into the rock rate. Recompute the rock unit price using a realistic production rate for the ledge conditions you observed (e.g., 150–200 CY/day with a hydraulic breaker rather than ripping), and add a contingency. This raises your total, but a low bid that loses money on overrun is worse than a slightly higher bid that survives.
- Qualify the bid in writing. Submit a written pre-bid question or bid qualification stating that the rock quantity appears understated based on visible site conditions and that you reserve the right to seek a rate adjustment if actual rock exceeds the 10% band. Many public owners will not accept qualifications on a unit-price bid, but the written record preserves your position.
Pre-award actions. (1) Submit an RFI asking the engineer to confirm the rock quantity and to disclose all boring logs; (2) request a pre-bid meeting to walk the alignment; (3) if the owner will not adjust the estimate, price the overrun risk at the high end of the variation band (up to 110% of 1,800 CY) into your rate.
If the owner refuses to adjust. After award, document actual rock quantities daily with survey cross-sections and joint measurement. When actual quantity exceeds 110% of the bid quantity, formally request a unit-price adjustment under the variation clause, supported by production records showing the changed conditions. If the owner refuses, pursue a differing site condition claim under the contract's changed-conditions clause, citing the visible ledges and the borings' failure to disclose them-but recognize that your site-visit observation weakens the claim, which is exactly why the risk should have been priced at bid time.