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How to bid on state contracts

how to bid on state contracts

Guidelines on Preparing Engineer's Estimate, Bid Reviews and Evaluation

January 20, 2004



  1. To outline recommended procedures for preparing engineer's estimates and for reviewing bids prior to concurrence in award.
  2. To provide guidance for improving pre-bid, bid review and evaluation policies and procedures.
  3. To improve competitive bidding procedures.


A State Transportation Agency's (STA's) procedures for soliciting and awarding construction contracts are an important part of the competitive bidding process. To ensure a competitive contracting environment, STAs should develop effective prequalification programs and other procedures to ensure fairness in the pre-bid solicitation process and post award review of construction bids. In addition, the STA's procedures for developing a reliable engineer's estimate are critical to the success of such programs. The engineer's estimate should reflect a fair and reasonable cost of the project in sufficient detail to provide an accurate estimate of the financial obligations to be incurred by the State and FHWA and permit an effective review and comparison of the bids received.

This guideline replaces Technical Advisory "T5080.4 - Preparing Engineer's Estimate and Reviewing Bids", dated December 29, 1980 and Technical Advisory "T5080.6; Guidelines on Contract Procedures with Emphasis on Bid Reviews and Evaluation", dated December 17, 1982.

Pre-Bid Considerations

Contractor Prequalification

In general, contractor prequalification is used to help determine the quantity and type of work a firm is capable of undertaking. Normally the firm's resources, its financial assets, work experience, and its staffing capability must all be identified for it to become prequalified. Some States that do not require prequalification find it necessary to collect some information via a financial statement or some other abbreviated process. These States do not specify the type of work or limit the size of project a firm may bid upon because they feel prequalification may restrict competition unduly. Other States do not prequalify but instead rely on the contractor's ability to provide a performance bond. The FHWA does not require prequalification, but if a STA elects to prequalify contractors, such procedures must not restrict competition.

Prequalification has been identified by some of the States as a useful tool for gathering pertinent information on the intricate management details of a contractor's firm. In the event of a conviction of a crime such as bid rigging, such information proves useful as an aid in determining the appropriate sanctions for the firm and/or the individuals involved. Another possible use would be to determine the relationship of firms bidding on any one project.

Specific information that should be collected from a firm includes the following: financial resources, principal individuals in the firm (anyone having a 10 percent or more interest in the firm), all affiliates or subsidiary companies including material sources, available equipment, work experience, individuals and organizations that have control or influence over the firm's bidding procedures, and whether the firm has ever been suspended or debarred from bidding and the related circumstances.

The instructions for completing the work experience section (of the pre-qualification form) should require that the firm identify all projects for which it was the prime contractor and those on which it worked as a subcontractor during at least the past two years as well as the contracting agency for those projects. Also, the contracting agency should describe the penalties for making false statements in the pre-qualification process.

Anti-collusion Statement

A sworn anti-collusion statement should be included as part of the bid proposal package. Under the 23 CFR 635.112(f), the STAs are required to include provisions in the bidding proposals that require all bidders to include a non-collusion statement with their bids. The FHWA in consultation with the DOJ has concluded that non-collusion statement may be either an un-sworn declaration made under penalty of perjury under the laws of the U.S. or a sworn affidavit executed and sworn before a person who is authorized to administer oaths by laws of the State. All non-collusion certifications shall be retained by the STA in accordance with the retention policy of 49 CFR 18.42. These certifications could serve as important evidence in the event that collusion or bid rigging is discovered at a later date. If any bidder submits a false statement, sanctions could then be taken against the firm.

Standard Specifications

All States should have standard specifications that address the issue of evidence of collusion among bidders. Those State specifications that currently address this item generally specify that the STA may determine that the bidder is not responsible and reject his/her proposal based on evidence of collusion. In addition to rejection of a firm's proposal, the specification should advise that collusive bidding is a violation of the law and could result in criminal prosecution, civil damage actions, and State and Federal administrative sanctions.

Bidders List

Confidentiality of the bidders' list (those firms that have taken out plans and a bid proposal document) has both advantages and possible disadvantages.

  1. With the availability of bid tabulation information and bidders lists on the Internet, the potential for bid collusion is higher than in previous years when such information was not readily available. In an effort to create the most competitive environment for potential bidders, a firm should not be aware of the identity of the other potential bidders. An advantage of keeping the bidders' list confidential is that bidders will submit what is believed to be a realistic competitive bid based upon the company's own individual circumstances. This is especially important for projects where there would be limited competition.
  2. A possible disadvantage of keeping the bidders' list confidential would be that potential material suppliers and subcontractors would not be informed of what firms to contact for upcoming projects. Therefore, a material supplier may fail to inform a potential bidder of its current prices. However, by the very nature of competitive bidding and the last-minute quotes traditionally provided contractors, it is felt both contractors and suppliers will continue to have adequate communication. Further, since the bidder must perform the contract work with his/her own firm and/or subcontract it, the burden actually lies with the bidder to determine what other firm he/she wants to work with on a project. Unless the project has new or unusual material or construction requirements, it is believed most contractors are aware of the available subcontractors and potential material suppliers. Therefore, it is believed the bidder is generally the one seeking potential subcontractors, especially if Disadvantaged Business Enterprise goals are included in the proposal. During court testimony, defendants have stated the bidders' list was used to identify other potential prime contractors to be contacted to rig the project bids. Although there are other ways to find out who plans on bidding, i.e. from material suppliers, bonding companies, etc. at least the contracting agency is not providing this information when it keeps the bidders list confidential. It is recognized that State freedom of information or similar statutes may, however, preclude keeping the bidders' list confidential.
  • Competition

    Competition for projects by bidders is an integral part of a successful construction program. An effort should be made by the contracting agency to

    maximize the competition by a number of methods.

    1. Advertisement should be widespread enough to advise those potential bidders interested in the type of work and size of project involved. Based on the complexity of the project, extended advertisement periods are encouraged.
    2. Consideration should be given to the project's estimated cost/size to maximize the number of bidders. The size normally varies in each State depending on the makeup of the construction industry. In some situations, it may be desirable to divide the project into several smaller contracts to foster competition.
    3. Jobs should be allowed to be bid individually or in combination.
  • Multiple Bid Requirements

    If a State law or regulation exists which requires that more than one bid be submitted before award can be made, efforts should be made to revise or repeal it. There is evidence that in those cases where only one contractor was interested in a project and the multiple bid requirements existed, the firm actually contacted other contractors to submit a complementary bid so award could be made. If only one bid is submitted and it far exceeds the estimate, it should be rejected; but if it is at or below the estimate, it should be considered for award.

    Escrow of Bid Documents

    The STAs should consider escrowing bid documents where it is administratively feasible to do so. Section 103.08 - "Escrow of Bid Documentation" of the AASHTO Guide Specifications for Highway Construction provides a sample specification for this requirement.

    Preparing Engineer's Estimate

    The critical review of any bid depends on the reliability of the estimate it is being compared to. Therefore, State Transportation Agencies (STAs) are strongly urged to devote sufficient attention to preparation of estimates using the same level of detail as the contracting industry. The engineer's estimate should reflect the amount that the contracting agency considers fair and reasonable and is willing to pay for performance of the contemplated work. Under-estimating causes project delay while additional funding has to be arranged to meet the contract costs. On the other hand, over-estimating causes inefficient use of funds that could be used for other projects. In addition, the engineer's estimate serves as the benchmark for analyzing bids and is an essential element in the project approval process. There are three basic approaches to estimating: actual cost, historic data, and a combination of historic data and actual cost. One of the most important factors in obtaining a good engineer's estimate is the experience of the estimator. While documented estimating procedures are helpful, contracting agencies are encouraged to provide sufficient training opportunities for their staff.

    Estimating Methods

    Actual Cost Approach

    The actual cost approach takes into consideration factors related to actual performance of the work (i.e. the current cost of labor, equipment, and materials; sequence of operations; production rates; and a reasonable value of overhead and profit). This approach requires the estimator to have a good working knowledge of construction methods and equipment. Also the estimator should have resources available for determining production rates from actual work performed by the contracting industry on similar type projects as well as resources for determining current construction methods and equipment. While adjustments for current market conditions may be required, this approach typically produces an accurate estimate and is useful in the bid review process in aiding the decision to award or reject the project. However, this method may be more time consuming and may not be practical for all projects.

    Historic Data Approach

    The use of historic data from recently awarded contracts is a cost-effective method to develop the engineer's estimate, however, solely relying on historic data may not be appropriate when the data is based on a non-competitive bidding environment. A file of previous unit bid prices should be maintained according to type, size, and location of project. Upcoming projects should be matched to the most recent projects to develop base prices for estimating the value of the unit prices. Under this approach, bid data are summarized and adjusted for project conditions (i.e. project location, size, quantities, etc.) and the general market conditions.

    This approach requires the least amount of time and personnel to develop and produces an adequate estimate for use in budgeting/programming, as long as competitive bid prices are used to build the estimate. Non-competitive bidding and unbalanced practices are the least recognizable using the historic data approach to estimating. Further adjustment of the base prices should be considered based upon the ages of the similar projects, but past inflation rates should not be projected into the future unless based on circumstances which can be reasonably expected to occur, such as labor rate increases through labor negotiations and known material price increases. Where the magnitude and timing of future increases are uncertain and would have a major effect on critical unit prices, price adjustment clauses may be a better alternative.

    Combination Approach

    This approach combines the use historic bid data with actual cost data. Most projects contain a small number of items that together comprise a significant portion (e.g. 75 percent) of the total cost. These major contract items may include Portland cement concrete pavement, structural concrete, structural steel, asphalt concrete pavement, embankment, or other major items of work within the contract. To the extent practical, STAs should collect information on local market prices of materials, equipment manufacturers, dealers, and rental companies, and material suppliers to obtain current cost information on a regular basis. Davis-Bacon prevailing wage rates on Federal-aid contracts could be easily incorporated to provide labor costs as determined by Department of Labor. Current material costs are obtained from local approved sources. Equipment costs can be obtained through rental companies or equipment dealers based on a reasonable depreciation schedule. The remaining items are estimated based on historical prices and adjusted as appropriate for the specific project.

    Confidentiality of the Engineer's Estimate

    Procedures and policies concerning confidentiality range from including the total estimated construction cost in the bid proposal to keeping the estimate confidential from the public even after the project has been constructed and opened to traffic. Benefits of making the total estimate public include eliminating the possibility of only one or some of the bidders knowing what the State believes the project is worth plus removing any pressure from State employees to release the estimated cost secretly. One disadvantage of making the estimated cost public is that firms desiring to rig bids can use the engineer's estimate as a basis for determining the low-bid amount to be submitted. This is especially important in cases where the contracting agency anticipates minimal competition and/or a single bid for construction.

    While confidentiality of the estimate obviously will not by itself successfully deter a firm from conspiring with other bidders, it does prevent bidders from knowing what approximate amount the contracting agency is willing to accept. For those agencies that believe total secrecy from the public is not realistic in their State, as a minimum attempt of confidentiality, a range for the estimated project cost could be provided and included in the bid proposal document. For example, a range could be established as follows:

    Category: Forex

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