Federal construction contractors need to be aware that an unbalanced bid can be rejected as nonresponsive. FAR 52.214-10(e) provides that:
“The Government may reject a bid as nonresponsive if the prices bid are materially unbalanced between line items or subline items. A bid is materially unbalanced when it is based on prices significantly less than cost for some work and prices which are significantly overstated in relation to cost for other work, and if there is a reasonable doubt that the bid will result in the lowest overall cost to the Government even though it may be the low evaluated bid, or if it is so unbalanced as to be tantamount to allowing an advance payment.”
Unbalanced bidding becomes a problem if the government believes that the bidder who submitted the apparent low bid according to the method by which the low bid was to be determined for evaluation purposes, in all probability will ultimately perform the project at a higher cost than the second bidder. In other words, the idea is that the low bidder has managed to “trick” the system by managing to be evaluated as low at bid opening, but through an unbalancing strategy has made it likely that he will be paid more than it appears. For example, if a solicitation requests bids on both an underrun and an overrun quantity for the same item (i.e. a unit price price for over 10,000 cubic yards and a unit price for under 10,000 cubic yards), with both bid item prices to be counted for bid evaluation purposes, an unbalanced bid would insert a very high price for the item likely to overrrun, and a very low price for the item likely to underrun. The bidder thereby would be planning to be paid a lot more than reflected by its bid because of its “educated guess” that there will be a windfall occasioned by an overrun.
In order for a contractor to assess the possibility of a bid rejection because of unbalanced bidding, it is necessary to examine two components. First, the bid must be mathematically unbalanced, meaning that the bid exhibits understated prices for some work and overstated prices for other work. Secondly, the bid must be materially unbalanced, meaning that there is a reasonable doubt that award to the bidder submitting the mathematically unbalanced bid will result in the lowest ultimate cost to the government. Where an unbalanced bid is received, the contracting officer is required to conduct a risk analysis to determine whether award to the firm will result in the government’s paying an unreasonably high price for contract performance.