Low-Bid Procurement: What It Is And The Entire Process

Written by Bridget Cooper

DateFeb 7, 2024
Reading time6 min read
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In the cutthroat world of the procurement industry, every penny counts. Clients are always looking for ways to cut costs on their projects. That’s why low-bid procurement reigns supreme. It’s the most commonly used procurement strategy, promising to deliver the project at a reasonable price. 

This guide explains the low-bid procurement process, its benefits and drawbacks. But first, let’s define low-bid procurement. 

What is the Low-Bid Procurement?

The low-bid procurement is a strategy where a client selects a contractor for a project based on the price. 

Simply put, the lowest bid wins. 

The client usually evaluates all the proposals and chooses the lowest bidder in an effort to save funds on the project. The low-bid approach has benefits and downsides, which we will discuss later. 

The low-bid approach is primarily used in government projects, where cost minimization is the main objective. However, there is a significant demand for this approach in the private sector, making it a well-rounded procurement strategy. 

Now that we know what a low-bid approach is, let’s examine the process involved. 

The Low-Bid Procurement Process

The low-bid procurement method is a multi-step process, with each step varying depending on the project’s complexity and scope. However, here are the basic steps you should expect in almost every procurement project using this approach:

Defining Project Needs

First, the client has to define the project’s specifications, designs, materials, and services. This crucial step often involves hiring architects and engineers if it’s a construction project. They help with drawings and designs that contractors use as blueprints during construction. 

Cost estimators help to create a desirable budget that clients will use as a benchmark when selecting the winning bid. The client uses input from these people to create a bid package containing every project information.

Bid Solicitation

The client kickstarts the low-bid process by publishing the project and inviting bids from interested parties. 

They include the bid package along with the tender notice and give interested bidders enough time to review the details. 

Clients often mention the bid strategy and the evaluation criteria used, which in this case is the project’s price. 

Bid Preparation

Now, the fun work begins. Contractors evaluate all the details and information in the bid documents to help them craft desirable bids. 

In this stage, contractors break down the entire project into smaller units, highlighting the costs of every unit. Clients will later rely on these costs to determine the winning bid. Contractors must include realistic figures. Otherwise, they risk going beyond the project’s budget

Proposal Evaluation

Clients evaluate bids submitted by interested contractors. The project’s cost is the main bid evaluation criteria, with clients focusing more on the overall cost instead of experience or qualifications. 

However, a client might focus on other evaluation criteria as tie-breakers if multiple contractors have similar bid prices. In such low-bid scenarios, factors like delivery time, licenses, success on similar projects, or payment terms could be used to select a winning bid. 

The evaluation process is slow and is known to take a few weeks, depending on the project’s complexity and size. 

Winning Bid Selection and Announcement

The client selects the lowest-priced proposal they believe meets all the project’s mandatory requirements as a winning bid. 

The contractor is invited for negotiations, especially in complex projects. These negotiations are necessary when the abnormally low bid raises concerns. During negotiations, the contractor is given the chance to clarify whether the abnormally low bid will impact the project’s success and quality. 

Once the client is confident of the chosen contractor’s capabilities, they publicly announce the winning bidder. The public announcement decision is vital for transparency and fairness. 

Project Performance and Monitoring

Contractors often start working on a project almost immediately after being confirmed as the winners. They’re expected to perform based on the requirements and specifications to ensure project success. 

In most cases, the contractor divides the project into smaller work units or phases, which the client must monitor to evaluate the progress.

Benefits of the Low-Bid Method

The low-bid approach has many benefits, most of which favor the client. However, these benefits vary with the  project’s complexity and size, but here are the common ones found in almost all projects:

Cost Saving

The essence of the low-bid approach is to save funds on projects by selecting the lowest bid. Due to the high competition, bidders are forced to submit competitive bids, which could have been difficult to achieve if only a select few bidders sent proposals for the project. 

Let’s take an example of a hospital construction project with an estimated cost of $500,000. 

The client might receive competitive bids to complete the project and meet all requirements for $450,000. In this case, the client will save $50,000 on the contract instead of paying the full amount. 

Transparency and Fairness

The evaluation criteria in the low-bid strategy eliminate bias by awarding the contract to the abnormally low bid. The approach evens the playing field, ensuring every contractor has an equal chance of winning the contract.

Contractors are usually unaware of their competitors’ bids until the contract has been awarded. Doing so ensures fairness throughout the procurement process and that a winner is awarded the contract based on their bid and not through impunity. 

Drawbacks of the Low-Bid Method

Despite being a common procurement strategy, the low-bid strategy has some drawbacks, including:

Quality Concerns

The abnormally low bid raises project quality concerns as contractors might cut corners to win projects. They might neglect safety measures, leading to accidents in the workplace. The low prices also raises material concerns, given that contractors will most likely opt for poor quality as a cost-savings approach. Additionally, general contractors could hire inexperienced workers, resulting in overall poor-quality work. 

To eliminate such situations, clients often require the winning contractor to explain how they plan to achieve the project’s objectives while still maintaining higher project standards. 

Little Room for Innovation

By focusing on the lowest bid price, clients often leave little room for innovations, which could benefit the project in the long run. 

Let’s take a road construction project as an example. 

The client’s focus on the lowest bid eliminates the need to use innovative construction ideas to ensure the road’s durability and its ability to withstand different weather conditions. 

By adopting the low-bid mindset, clients sacrifice the project’s value to save money. Sometimes, the cheapest bid can become problematic in the future, where the entire project must be redone. 

Final Thoughts

The low-bid approach is perhaps the most common in public projects. It focuses on saving money by choosing the cheapest bid. Although it helps clients reduce project costs and promotes transparency, it often leads to risks such as poor quality and limited innovations. Picking a winning contractor based on their low bid doesn’t often guarantee project success. Measures like constant monitoring often help counterbalance the drawbacks of this approach. 

Written by Bridget CooperUpdated on Feb 23, 2024

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