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detection and prevention of unbalanced bids - Construction...

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Construction Management and Economics ( August 2009) 27 , 721–732 Construction Management and Economics ISSN 0144-6193 print/ISSN 1466-433X online © 2009 Taylor & Francis http://www.informaworld.com DOI: 10.1080/01446190903117785 Detection and prevention of unbalanced bids DAVID ARDITI * and RANON CHOTIBHONGS Department of Civil, Architectural and Environmental Engineering, Illinois Institute of Technology, Chicago, USA Taylor and Francis Ltd Received 4 October 2008; accepted 15 June 2009 10.1080/01446190903117785 Unbalanced bidding is a serious problem for the construction owner because it may increase the cost of construction The most common way to mathematically unbalance a bid is frontloading where a bidder overstates the unit price of line items scheduled to be performed early in the project and understates the unit price of line items performed later. A bidder can also overstate the unit price of a line item whose quantity was somehow underrated by the engineer. If the owner proves that a mathematically unbalanced bid costs more to perform, the bid is said to be materially unbalanced, in which case the owner can reject the bid. A model is presented that formalizes and automates the process of detecting mathematically and materially unbalanced bids by comparing line item prices with the engineer’s estimates and the average prices offered by the bidders. This model allows owners to detect and reject unbalanced bids, and deters bidders from unbalancing their bid. Keywords: Bids, mathematical models, financial management, construction costs, optimization. Introduction Unbalanced bids constitute a serious problem for construction owners. In competitive bidding, awarding a contract to an unbalanced bid may cause the owner’s overall project cost to get higher. In some cases, it generates contentious change orders (Manzo, 1997). The owner has the right to reject unbalanced bids, but it is hard to detect unbalancing. While Stark’s (1968, 1972, 1974) linear programming model of unbalancing bids in highway construction contracts is relatively easy to detect by the owner, Nassar’s (2004) research aims to unbalance a bid and not be caught in the process. Cattell et al . (2007) summarize methods of unbalancing bids and argue that a client is given full information of a contractor’s item pricing and that the client is given the choice to select among the contractor’s competitors, implying that there are no ethical implications of unbalancing a bid. In other words, if an owner suffers the high cost of an unbal- anced bid, it is rather the owner’s fault for selecting the contractor who unbalanced the bid, not the fault of contractor who unbalanced the bid. However, according to a survey of 270 owners, architects, engineers, construction managers, general contractors and subcontractors about ethical practices in the construction industry conducted by the Fails Management Institute (FMI) for the Construction Management Association of America (CMAA), unbal- ancing a bid was accepted as unethical by 84% of the respondents (Doran, 2004). Also, Choi (2004) considers unbalancing a bid to ‘border on unethical’ (p. 206) and New York City’s
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