Being the lowest bidder on a job can be quite exciting. However, depending on the spread between the lowest bidder and the others, the winner may be at risk. This is why surety underwriters request the other bid amounts to evaluate the spread. If the spread is greater than 10% between the winning bid and the next lowest-bid, the surety will need further clarification.
Why? Surety Underwriters want to know why there is a spread because they want to make sure the contractor can turn a profit and the contractor has not forgotten something or made some other error in their bid.
These are some contributing factors that can cause a wide bid spread:
- Experience – Maybe the contractor has worked for the owner before, or they have history of completing similar jobs within their estimate.
- Resources – The contractor could own their own equipment versus having to rent equipment.
- Pricing Advantages – Getting supplies/materials at a lower cost.
Consistently underbidding jobs raises a red flag for surety companies. Trying to “buy a job” to generate cash flow could result in multiple change orders once entered into a contract and cause losses for the contractor. The surety wants to make sure that the principal is ultimately successful and makes a profit.
Read about the New WA State Procurement Policy that is effecting Washington bidders, effective July 1st, 2019.
For more information, visit “Can you Explain Your Bid Spread?” by Old Republic Surety.
Contact us with any questions.