Understanding the Risks of Lowest Bids. Does the Lowest Bid Always Fall Short of the Full Scope of Work?

The lowest bid does not always fall short of the full scope of work—but it frequently does, and there are significant risks associated with accepting the lowest bid. Here’s what industry evidence and expert commentary reveal:

Common Issues with the Lowest Bid

Common issues with accepting the lowest bid in construction and contracting include:

·       Omitted Scope or Underestimating Costs: Low bids may result from contractors unintentionally or deliberately leaving out necessary items, leading to incomplete project delivery and the need for costly change orders later.

·       Change Orders and Hidden Costs: Contractors might submit a low bid to win the job, then use change orders (often with significant markups) to cover missing or underestimated work, driving up the final project cost

·       Use of Inferior Materials or Labor: To meet a low price, some contractors may cut corners by using substandard materials or less-skilled labor, resulting in poor workmanship, structural issues, and higher long-term maintenance costs.

·       Project Delays: Low-bid contractors may lack the resources or experience to manage the project efficiently, leading to missed deadlines and extended timelines, which can negatively impact ROI and project schedules

·       Change Orders and Hidden Costs: Contractors may intentionally bid low to secure a project, anticipating they can recoup profits through change orders once the work begins. These change orders often come with additional markups, increasing the total project cost beyond the initial bid.

·       Quality Concerns:To meet a very low price, contractors might cut corners on materials, labor, or safety, resulting in subpar work or even non-compliance with regulations.

·       Delays and Rework: Projects awarded to the lowest bidder are statistically more likely to experience budget overruns and missed deadlines. For example, a 2024 industry report found that 57% of low-bid projects exceeded their original budgets, and 46% missed critical deadlines

Why Does This Happen?

·       Pressure to Win: Contractors may bid aggressively low to win contracts, especially in competitive markets, sometimes at the expense of realistic pricing and complete scope coverage. Change Orders and Hidden Costs:Contractors may intentionally bid low to secure a project, anticipating they can recoup profits through change orders once the work begins. These change orders often come with additional markups, increasing the total project cost beyond the initial bid.

• Quality Concerns: To meet a very low price, contractors might cut corners on materials, labor, or safety, resulting in subpar work or even non-compliance with regulations.

Does This Always Happen? — No, But Often Enough to Warrant Caution.

• There are exceptions: Some low bids are legitimate, coming from highly efficient contractors or those with unique cost advantages who can deliver the full scope at a lower price. However, these cases are less common and require careful vetting.

• Due Diligence is Critical: Owners and project managers are advised to conduct thorough contractor evaluations and document reviews to ensure all bids—especially the lowest—fully address the required scope and quality standard

• Ambiguous or Incomplete Project Documents: If the scope of work is not clearly defined, bidders may interpret it differently or omit ambiguous items, leading to gaps in coverage.

• Change Orders and Hidden Costs: Contractors may intentionally bid low to secure a project, anticipating they can recoup profits through change orders once the work begins. These change orders often come with additional markups, increasing the total project cost beyond the initial bid.

• Quality Concerns: To meet a very low price, contractors might cut corners on materials, labor, or safety, resulting in subpar work or even non-compliance with regulations.

• Delays and Rework: Projects awarded to the lowest bidder are statistically more likely to experience budget overruns and missed deadlines. For example, a 2024 industry report found that 57% of low-bid projects exceeded their original budgets, and 46% missed critical deadlines.

  
  

Best Practices to Avoid Scope Shortfalls

• Detailed Scope Documentation: Provide comprehensive, unambiguous project requirements to all bidders to ensure apples-to-apples comparisons.

• Prequalification: Only allow experienced, financially stable contractors to bid, reducing the risk of unrealistic low bids.

• Value-Based Selection: Consider factors beyond price, such as contractor experience, quality, and past performance, to achieve the best overall value

  

While the lowest bid does not always fall short of the full scope of work, it is a well-documented risk. Owners should exercise caution, prioritize clear documentation, and evaluate bids holistically to avoid costly surprises and ensure project success. To mitigate these issues, experts recommend evaluating bids not just on price, but also on the contractor’s experience, reputation, scope clarity, and quality of materials and workmanship