Unbalanced Bids Research Articles

An advanced decision-support system for ranking unbalanced bids

Awarding a contract to a bidder who has unbalanced the bid may cost more money to the owner. An owner who determines that a bid has been unbalanced has the legal right to reject the bid. Although several models have been developed to detect unbalanced bids, some researchers still assert that the number of cases in which owners mistakenly identify balanced bids as unbalanced is too great to ignore. One of the reasons of this failure is the use of an inappropriate benchmark against which the offered unit prices are compared. In this paper it is argued that the use of the geometric mean of the unit prices provided by the bidders as a benchmark helps to obtain robust solutions and an advanced decision-making model is proposed in which the Information Entropy and VIKOR methods are used to detect unbalanced bids. The results obtained from an example project drawn from the literature demonstrate how owners may be misled if they use an inappropriate benchmark in detecting unbalanced bids. This study contributes to the body of knowledge by highlighting the negative impacts of using flawed benchmarks in this process, an area of research that is mostly ignored in the unbalanced bidding literature.

A Procedure for Rebalancing Unbalanced Bidding in Unit Price Contracts

Unbalanced pricing in unit price contracts aims at gaining additional benefits for the contractor who utilizes this strategy at the expense of the owner, or obtaining a competitive advantage over other competing bidders who submit balanced or less skewed bids. This paper presents the development of a procedure to prevent the negative impacts of unbalanced prices in submitted bids on the owner. The proposed procedure rebalances the submitted rates of all bidders based on the reasonable price for each item as determined by the bidders themselves. The basis for adjusting item rates is the pack price of each item and the bidder’s total submitted bid price. Applying the procedure eliminates the need for the challenging task of detecting unbalanced bids, as well as the need to reject such bids and re-advertise the project. The proposed method can handle various forms of bid unbalancing, including front loading, quantity error exploitation, as well as the imbalance associated with collusion schemes. The procedure’s robustness is demonstrated through two examples. The method is anticipated to provide the needed protection for owners against additional costs and financial risks associated with an imbalance in bids. Simultaneously, the method deters bidders from manipulating submitted bids and nurtures fair competition among bidders to win the contract.

A Model for Detection and Prevention of Unbalanced Bid in the Public Work Procurement Process in India

Indian Public procurement works contribute almost 30% of the total GDP, most of the large and massively funded projects are public-funded, utilizing the tax collected from the citizens of the country. Hence, any discrepancies associated with such projects have direct implications on the taxpayers. The public procurement process, due to legal bindings and ethics is prone to various malpractices, that affect the overall performance of the system. Hence, it becomes imperative to prevent anomalies associated with the public procurement process. One of the anomalies associated with public procurement is an Unbalanced bid, a method of redistributing the project cost such that it varies from the Engineer’s Estimate. The ethics related to Unbalanced bid varies, contractors state that unbalanced bidding is moral and find its application beneficial to the project performance while clients and officials opine that an unbalanced bid is an unethical practice to jeopardize project progress and client’s money. The unbalanced bid can be of four types – Quantity Error Exploitation, Front-loaded Bid, Back loaded Bid, and Collusive bid. The research intends to propose a model to detect and prevent unbalanced bids respecting the constraints of the public procurement process in India, enhancing project performance, and protecting tax payer’s money.

Detecting unbalanced bidding to achieve economic sustainability using fuzzy logic approach

Purpose To achieve sustainability for a construction project requires the achievement of economic, environmental and social sustainability at the same time. The economic sustainability of a project should be built into the stipulated cost. The unbalanced bidding always contribute cost overrun for a construction project. The purpose of this paper is to develop a method for identifying unbalanced bidding. Design/methodology/approach The problem of identifying unbalanced bidding is a comprehensive evaluation problem. All line items and bidders in bills of quantities are evaluation factors and evaluation objects, respectively, and the engineer’s estimated prices are considered as the evaluation benchmarks. The weights of these factors are determined through integrating the entropy weight method and the analytic hierarchy model, which consider subjective and objective factors in the weighting process. Findings The proposed model can be used to quantitatively evaluate unbalanced bids. The identification process can be analyzed within a short period, specifically with the aid of Microsoft Excel, reducing delays in awarding contracts. The results show that the model will support owners as they efficiently and effectively identify unbalanced bids in the bid evaluation stage to mitigate the negative consequences of unbalanced bidding. Practical implications A case study is given to verify the feasibility and practicability of the proposed method, which not only assists owners in efficiently and effectively identifying unbalanced bidding, but also promotes the economic sustainability of construction projects. Originality/value The fuzzy comprehensive evaluation method is used to detect unbalanced bidding, allowing owners to be objective as they identify and reduce unbalanced bidding at the procurement stage.

Detecting unbalanced bids via an improved grading-based model

Abstract Unbalanced bidding, also known as skewed bidding, is the process of increasing and/or decreasing the prices of various bid items without altering the total offered bid price. Bids can be unbalanced either mathematically (front-end loading) or materially (quantity error exploitation). Owners should be very careful when evaluating the tenders as awarding a contract to an unbalanced bid may result in severe cost overruns because the prices of those items do not reflect their true costs and markup allocations. Unbalanced bidding is still a contentious issue in the construction industry. While some researchers consider it as a legal bidding strategy in such a fierce competitive business environment, others view it as an unethical practice and claim that unbalanced bids should be disqualified. Studies regarding unbalanced bidding can be categorized into two groups: (1) the ones focusing on detecting or preventing this practice to help owners; and 2) the ones focusing on optimizing unbalanced bidding to help contractors. This study aims to develop a model, which consists of eight grading systems, to assist owners in detecting materially unbalanced bids. The proposed model is the improved version of the previous model, which was composed of five grading systems. In order to demonstrate how this grading-based model can be used by owners, an illustrative example is presented. It was found that owners can easily and successfully detect unbalanced bids via the proposed model.

A Grading System-based Model for Detecting Unbalanced Bids during the Tendering Process

Unbalanced bidding is a common practice used in both unit price and lump sum contracts. Contractors may unbalance their bids in different forms for various reasons. The studies in the literature either focus on developing optimization models that assist contractors in winning contracts and maximizing profits of their bids through unbalancing or developing models that assist owners in detecting and/or preventing unbalanced bids during the bid evaluation stage. Unbalanced bidding is one of the most controversial subjects in the construction management literature and practice. Although there is no consensus on whether it is unethical or not, this practice is not usually for the benefit of owners. Therefore, owners have the right to reject the unbalanced bids and create a fair competition environment if they have a mechanism to detect it during the bid evaluation process. The main objective of this study is to propose a model, which consists of five different grading systems and helps owners in detecting unbalanced bids during the tendering process. In the proposed model, owners may either calculate the individual grades of each bidder or calculate the final score of each bidder by assigning different weights to these grading systems according to the project characteristics or their own needs. The final scores and bid prices of the contractors can be simultaneously evaluated. In order to demonstrate the applicability of the proposed model, an illustrative example is presented. It can be concluded that the proposed model can be effectively and easily used by owners for detecting unbalanced bids. This paper is the revised version of the paper that has been published in the proceedings of the Creative Construction Conference 2018 (Polat et al., 2018).

Identification of unbalanced bids based on grey-fuzzy evaluation method

To provide theoretical reference for owners to identify unbalanced bids, this paper aims to construct an identification method based on grey relational and fuzzy set theory. Firstly, to measure the closeness degree between bidding unit price from engineering’s estimated price, grey relational analysis theory is used to express the relationship between them. Secondly, a combined weight method determining all line items is calculated through integrating analytic hierarchy model and maximizing deviation method. Thirdly, based on fuzzy set theory, the membership degree and the fuzzy relation matrix are constructed, and then a fuzzy comprehensive identification method is established to identify unbalanced bidding. Fourthly, on the basis of fuzzy comprehensive identification method, the scoring set and total score vector are designed, and the rank of unbalanced bids is obtained by total score vector. Finally, a practical construction project bidding is stated to illustrate the effectiveness and practicability of the proposed method.

Identification and Prevention of Unbalanced Bids Using the Unascertained Model

AbstractUnbalanced bidding has presented a significant issue in the construction industry. The award of a contract to an unbalanced bid poses a significant threat to the construction cost, as well ...

Detection Tool for Unbalanced Bids

Unbalanced bidding is a cash flow management strategy that is recognized as an illegal/disqualifying practice by public owners; and unethical practice by most private owners. This practice provides the awarded bidder with unjustified advantages at the expense of the owner. Unfortunately, limited tools and techniques are currently available to identify and detect unbalanced bids during the evaluation process. This paper presents an innovative detection tool to identify unbalanced bids in unit price contracts during the bid evaluation process. The proposed technique develops BMDI graphs to visualize total markup variation patterns during the project lifetime to detect unbalanced bids. The proposed method also uses Monte Carlo simulation to take in consideration the impact of cost uncertainties and risks. An illustrative example was presented to show the capabilities and features of the proposed method in determining the status of submitted bids during the evaluation process.

The Controversy around Unbalanced Bidding in Construction: Seeking a Fair Balance

AbstractUnbalanced bidding continues to be a controversial issue in the literature as well as in actual competitive bidding practices. Although a considerable amount of the past research advocated unbalanced bidding and viewed it as a legitimate bidding strategy, public bidding regulations discourage this practice and may disqualify unbalanced bids as nonresponsive offers. In an attempt to ease the controversy and present for the first time a balanced perspective on unbalanced bidding, this paper examines the two conflicting perspectives and conducts a review of the literature reflecting the owners’ and the contractors’ perspectives and an analysis of the conflicting impacts of bid unbalancing on the owner and the contractor. The root causes of disagreement around this practice are discussed and criteria are suggested that draw a line between acceptable and unacceptable bid unbalancing. The proposed criteria seek equitable risk-sharing between owners and contractors and are expected to minimize the ambigu...

Handling Unbalanced Bidding in Construction Projects: Prevention Rather Than Detection

AbstractUnbalanced bidding is a common practice associated with both unit price and lump sum contracts. This practice is not usually in the owner’s best interests and is used in different forms by contractors for various reasons. Bid evaluation practices try to identify unbalanced bids and may reject the lowest bid if it is perceived to be unbalanced. Previous research on this topic focused on either helping contractors unbalance their bids or detecting imbalance in bids in order to reject them. This paper proposes a model based on a prevention, rather than detection, approach to handling unbalanced bidding. The proposed model balances all the bids submitted for a project and thereby neutralizes the impact of manipulating bid prices to obtain undeserved payments from owners. This approach protects the interests of the owners while maintaining the essence of competitive bidding by awarding the project to the bidder who submitted the lowest bid in a fair competitive process. Two examples, representing the b...

On being balanced in an unbalanced world

This paper examines the case of a procurement auction for a single project, in which the breakdown of the winning bid into its component items determines the value of payments subsequently made to bidder as the work progresses. Unbalanced bidding, or bid skewing, involves the uneven distribution of mark-up among the component items in such a way as to attempt to derive increased benefit to the unbalancer but without involving any change in the total bid. One form of unbalanced bidding for example, termed Front Loading (FL), is thought to be widespread in practice. This involves overpricing the work items that occur early in the project and underpricing the work items that occur later in the project in order to enhance the bidder's cash flow. Naturally, auctioners attempt to protect themselves from the effects of unbalancing—typically reserving the right to reject a bid that has been detected as unbalanced. As a result, models have been developed to both unbalance bids and detect unbalanced bids but virtually nothing is known of their use, success or otherwise. This is of particular concern for the detection methods as, without testing, there is no way of knowing the extent to which unbalanced bids are remaining undetected or balanced bids are being falsely detected as unbalanced. This paper reports on a simulation study aimed at demonstrating the likely effects of unbalanced bid detection models in a deterministic environment involving FL unbalancing in a Texas DOT detection setting, in which bids are deemed to be unbalanced if an item exceeds a maximum (or fails to reach a minimum) ‘cut-off’ value determined by the Texas method. A proportion of bids are automatically and maximally unbalanced over a long series of simulated contract projects and the profits and detection rates of both the balancers and unbalancers are compared. The results show that, as expected, the balanced bids are often incorrectly detected as unbalanced, with the rate of (mis)detection increasing with the proportion of FL bidders in the auction. It is also shown that, while the profit for balanced bidders remains the same irrespective of the number of FL bidders involved, the FL bidder's profit increases with the greater proportion of FL bidders present in the auction. Sensitivity tests show the results to be generally robust, with (mis)detection rates increasing further when there are fewer bidders in the auction and when more data are averaged to determine the baseline value, but being smaller or larger with increased cut-off values and increased cost and estimate variability depending on the number of FL bidders involved. The FL bidder's expected benefit from unbalancing, on the other hand, increases, when there are fewer bidders in the auction. It also increases when the cut-off rate and discount rate is increased, when there is less variability in the costs and their estimates, and when less data are used in setting the baseline values.

Detection and prevention of unbalanced bids

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.

Discussion of “Electronic-Based Procedure for Managing Unbalanced Bids” by Wei-Chih Wang

The author indicates he presents a unique electronic spreadsheet method for reviewing unbalanced unit prices based on unit price data from all bidders on a lump sum bid. This contracting strategy and bid model are from the public market and the building construction sectors in Taiwan. There are three points of interest in the paper: the bid model, the electronic spreadsheet, and the timing and method of selecting the owner’s unit price basis for use in negotiating unbalanced unit prices.

Closure to “Electronic-Based Procedure for Managing Unbalanced Bids” by Wei-Chih Wang

The author indicates he presents a unique electronic spreadsheet method for reviewing unbalanced unit prices based on unit price data from all bidders on a lump sum bid. This contracting strategy and bid model are from the public market and the building construction sectors in Taiwan. There are three points of interest in the paper: the bid model, the electronic spreadsheet, and the timing and method of selecting the owner’s unit price basis for use in negotiating unbalanced unit prices.

Electronic-Based Procedure for Managing Unbalanced Bids

Construction lump sum lowest bid procurement is one of the most prevalent methods of awarding construction contracts. For a lump sum bidding practice in Taiwan, after the lowest bidder is awarded a construction project contract, the contractual unit price for each cost item is taken as the product of the owner's estimated unit price and a discounting ratio equal to the total bid price divided by the owner's project cost estimate. This owner-based approach is inequitable because the bidder is denied the right to allocate the risks associated with the costs of performing the work. In U.S. practice, while the unit prices submitted by the bidder are usually considered as the contractual ones, unbalanced bids may occur. This work presents a bidder-based quantitative procedure, built on an electronic-based bidding process for effectively and efficiently supporting reviewing and adjusting the bidder's proposed unit prices for a lump sum procurement project. The advantages of this procedure include that the unit prices electronically obtained from the owner and all qualified bidders are included in analyses during unit-price evaluation, and that rules for unit-price adjustment along with maintaining the total contractual price are included. The novel procedure has been successfully applied to several construction projects in Taiwan and the results have been greatly appreciated by both governments and contractors.