The comparison is rarely like for like
Before anything else, the bids have to be brought onto a common basis. Qualifications, exclusions, differing programme assumptions and different treatment of provisional sums mean that four returns are frequently four different offers rather than four prices for one job.
Normalising them is the first task and it regularly changes the ranking. We set out the method in tender bid analysis and normalising.
Only once that is done does the price comparison mean anything, and only then is it worth asking the harder questions.
It is worth being clear about what the tender total actually is. It is a prediction of cost made by a party who wants the work, based on documents you supplied, in a market that will move. Treating it as a fact rather than as a forecast is the root of most of the disappointment that follows.
What a low bid can mean
It can mean genuine efficiency: better buying, a stronger supply chain, or work that fits neatly with what they are already doing nearby. Those are real advantages and they are worth having.
It can also mean an error, which produces a contractor who discovers it in month three and spends the rest of the contract recovering the position through change. Or it can mean a deliberate strategy of buying the job and rebuilding margin from variations, which is a legitimate commercial approach and an expensive one for the employer.
Distinguishing between these is not guesswork. The build up tells you, if the pricing document asked for one.
Where to look
Preliminaries relative to the works value, because a contractor who has cut site management to win is a contractor who will manage the job thinly. Rates for the elements most likely to change, because that is where the money moves later. And the treatment of any element the tenderers priced very differently from each other, which usually indicates the documents were ambiguous.
Then look at what is not in the price at all. Provisional sums, exclusions and anything described as being by others are the parts of the job that have not been fixed, and a low total with high provisional sums has fixed less than it appears.
Finally, the programme. A duration materially shorter than the others is either an advantage or an assumption, and it is worth asking which.
The things that are not in the documents
Financial standing matters more on a two year contract than on a short one, and it is straightforward to check. So is current workload, because a contractor whose order book has just doubled is a different proposition from the one who tendered.
The proposed team is the factor most often ignored and most often decisive. Construction contracts are administered by people, and the named site manager and commercial manager will affect the outcome more than a percentage on the tender total. Asking for them by name, and asking what else they are running, is entirely reasonable.
References are worth taking from a completed project rather than a current one, and worth asking a specific question: how did the final account compare with the contract sum, and why.
Two stage, and what it changes
Where the design is not sufficiently developed to tender competitively, a two stage process brings a contractor in early on a fee basis and converts to a contract sum later. That can work well and it removes competition from the point at which most of the cost is fixed.
The conversion is therefore the whole exercise. It needs the second stage package opened up, tested against market rates and audited line by line, which is work the first stage fee does not usually cover.
We covered the trade off in two stage tender or single stage.
What this means for you
Score bids on a normalised basis, then interrogate the build up of the leading two rather than accepting the total. An hour spent on the pricing document before award is worth more than any negotiation after it.
Ask for the team by name and check the financial position. Both are cheap and both predict outcomes better than the tender total does.
That analysis is what tendering and procurement covers, and the measurement behind it runs through quantities and take-off.
A last observation. The tender process tells you how an organisation behaves under commercial pressure, and that is information worth reading. A tenderer who asks good questions during the period, flags genuine ambiguities and submits a clear qualification schedule is showing you how they will administer the contract. So is one who submits late, qualifies vaguely and asks nothing. Interrogating the build up before award is exactly the work a client side quantity surveyor is for.